Making Sense of the 2020 Rate Increases

January 10, 2020


In partnership with Supply Chain Now Radio, we developed the Transportation Trends podcast series to explain, review and analyze the FedEx and UPS 2020 rate increases. In each of the three podcasts we were able to really tap into John Haber’s deep knowledge of the industry. We’ve taken some of the top sound bites from each podcast, but we encourage you to listen to each podcast in its entirety.

Setting the Stage

Historically, UPS, FedEx and USPS raise rates annually. If you look back over the last decade, UPS and FedEx have raised rates at least 4.9% every year. It has become so predictable that customers are conditioned to expect it every January.

However, in addition to this annual rate increase, about five years ago the providers started introducing changes throughout the year. In fact, in 2018, there were only two months of the year where there was not some sort of pricing change from UPS or FedEx.

Shipping is often a company’s biggest expense and it’s very complex. With UPS and FedEx implementing hundreds of different surcharges, the rate increases are much more than 4.9% annually. Unless you are an expert, it's nearly impossible to read the bill. The sheer numbers associated with shipping means companies need to be hyper-focused on it or they will lose their edge.

Listen to all three podcasts here.

 

Podcast #1: How to Mitigate Rising Shipping Costs - the 2020 FedEx Pricing Increases


E-Commerce is changing the game

E-commerce is driving a lot of the additional surcharges because much of what is being delivered is bulkier than what we have seen historically. Things like sofas and TVs were not shipped to people’s houses, they were traditionally bought in stores and delivered locally. So small parcel shipping is now worth hundreds of millions of dollars which, in turn, has created hundreds of new surcharges from the carriers. These large, bulky items get hit with Additional Handling charges, Oversized charges and even Over-Max charges.

In addition, delivery surcharges are being implemented because there are more and more rural and extended deliveries. Those costs are increasing by about 40% to 50% over the last three years.

"Free shipping does not exist.  It is a fallacy. Someone is paying for it."
- John Haber, CEO, Spend Management Experts

Thanks to all these surcharges, we are finding that our clients are vastly undercharging for freight and having to subsidize it because they can't go back after the fact and charge the customer. So, it’s crucial you have good policies, procedures, and methodologies set up to maximize your shipping cost, or at least minimize the burden.

 

Podcast 2: How to Mitigate Rising Shipping Costs - UPS 2020 Rates & More


UPS decreased the threshold for how much a package weighs before it incurs an Additional Handling weight charge and it can impact shippers dramatically.

Both UPS and FedEx have announced a policy change for additional handling of packages. There is now an Additional Handling Weight surcharge applied, in addition to the freight charge. It's a $4 charge per package and the weight is being lowered from 70 pounds to 50 pounds in 2020.

As an example of how this can impact a company, we have done a cost estimate for one of our retail clients and this will add $2 million in additional costs in 2020. So, the 4.9% annual rate increase is only the tip of a very large iceberg. Shippers don't understand how much this is going to impact them.

Both UPS and FedEX added a surcharge for rural zip codes

Due to the increase in deliveries to rural addresses, another big policy change for 2020 involves a near 5% increase in the number of zip codes that incur a delivery surcharge. So because someone can now order something online and have it shipped for free to their homes, UPS has added a surcharge of over 18% for certain rural zip codes and the number of zip codes that this applies to has also increased.

Don’t wait to renegotiate your contract

In order to be proactive in managing shipping costs, companies need to be vigilant because the carriers are changing things on a weekly basis. Don’t wait until your contract expires to renegotiate the terms. You've got to pay attention to the fine print, and you've got to get back to the negotiation table immediately.

We are currently running forecasts for all of our clients to determine the cost impact of these changes. Then we're challenging the carriers and renegotiating where appropriate. If we need to switch to a different provider because of these cost increases, then we will do that.

It’s imperative to have good forecasting techniques in order to really understand the impact to your business. It's survival of the fittest, especially in the retail world, and shipping is one of the largest costs.

 

Podcast #3: Reviewing the UPS & FedEx Rate Changes and the Biggest Supply Chain Developments in 2019


During the 2019 holiday season, both UPS and FedEx implemented peak season surcharges for three categories: Additional Handling, Large Parcel surcharge and Over-Max.

All three of these charges are designed to address large, bulky items that are increasingly moving through the small parcel networks, particularly during peak holiday season. UPS and FedEx don’t want this volume in their network so for an Over-Max package (150 lbs or greater) the Peak Season surcharge for UPS is $250 and for FedEx it’s $435. And that is on top of the $850 which is the regular surcharge for a package that size, so it’s $1,100 before you include the freight or the fuel cost. Ultimately this could add up to nearly $1,500 to ship that package through the network.

To make it even worse, the UPS Peak Season surcharges are in place from October 1st to January 4th. Last year they started on November 18th. Not only did the costs go up drastically because of surcharges but also the amount of time that these surcharges are applied was the entire 4th quarter. FedEx did not roll out their surcharges until October 24th, so the duration was less, but the cost per package is higher.

People really need to pay attention to when these charges go into place and understand how they are applied because there are very significant charges per package.

What to expect in 2020

Based on what we are seeing, there will definitely be additional rate increases in 2020. Changes to the fuel surcharge tables happen every year, as well as 2020 Peak Season surcharges. But we also forecast even more changes relative to the larger, bulkier items and new fees around the alternative delivery locations that you see popping up everywhere.

Companies have to pay attention

At SME, we use a Transportation Optimization Model and it all starts with visibility. The first step is accessing all the information and data and then making it transparent to understand the impact. It is only after we make sense of the data that we can turn it into something that is actionable.

From there, we develop a strategy and continue to tweak that strategy based on the constant changes we see. Then it boils down to how well the strategy is executed. It’s also important that measurements are put in place on the back end to determine how successful the execution has been.

The supply chain is dynamic - it is not static. It changes every day. We believe information is power. Companies have to constantly monitor the things that will impact them in order to be successful.

If those four pillars are in place within your organization, whether you're using an external third party to help you or you're doing it via good internal management processes, you're going to be in much better shape. We think the model works, and we make sure those four key components are covered with all of our clients.

Listen to all three podcasts here.

Share this article:

Blog Posts

  • Categories

Making Sense of the 2020 Rate Increases

January 10, 2020


In partnership with Supply Chain Now Radio, we developed the Transportation Trends podcast series to explain, review and analyze the FedEx and UPS 2020 rate increases. In each of the three podcasts we were able to really tap into John Haber’s deep knowledge of the industry. We’ve taken some of the top sound bites from each podcast, but we encourage you to listen to each podcast in its entirety.

Setting the Stage

Historically, UPS, FedEx and USPS raise rates annually. If you look back over the last decade, UPS and FedEx have raised rates at least 4.9% every year. It has become so predictable that customers are conditioned to expect it every January. However, in addition to this annual rate increase, about five years ago the providers started introducing changes throughout the year. In fact, in 2018, there were only two months of the year where there was not some sort of pricing change from UPS or FedEx. Shipping is often a company’s biggest expense and it’s very complex. With UPS and FedEx implementing hundreds of different surcharges, the rate increases are much more than 4.9% annually. Unless you are an expert, it's nearly impossible to read the bill. The sheer numbers associated with shipping means companies need to be hyper-focused on it or they will lose their edge.

Listen to all three podcasts here.

 

Podcast #1: How to Mitigate Rising Shipping Costs - the 2020 FedEx Pricing Increases


E-Commerce is changing the game

E-commerce is driving a lot of the additional surcharges because much of what is being delivered is bulkier than what we have seen historically. Things like sofas and TVs were not shipped to people’s houses, they were traditionally bought in stores and delivered locally. So small parcel shipping is now worth hundreds of millions of dollars which, in turn, has created hundreds of new surcharges from the carriers. These large, bulky items get hit with Additional Handling charges, Oversized charges and even Over-Max charges. In addition, delivery surcharges are being implemented because there are more and more rural and extended deliveries. Those costs are increasing by about 40% to 50% over the last three years.

"Free shipping does not exist.  It is a fallacy. Someone is paying for it." - John Haber, CEO, Spend Management Experts

Thanks to all these surcharges, we are finding that our clients are vastly undercharging for freight and having to subsidize it because they can't go back after the fact and charge the customer. So, it’s crucial you have good policies, procedures, and methodologies set up to maximize your shipping cost, or at least minimize the burden.  

Podcast 2: How to Mitigate Rising Shipping Costs - UPS 2020 Rates & More


UPS decreased the threshold for how much a package weighs before it incurs an Additional Handling weight charge and it can impact shippers dramatically.

Both UPS and FedEx have announced a policy change for additional handling of packages. There is now an Additional Handling Weight surcharge applied, in addition to the freight charge. It's a $4 charge per package and the weight is being lowered from 70 pounds to 50 pounds in 2020. As an example of how this can impact a company, we have done a cost estimate for one of our retail clients and this will add $2 million in additional costs in 2020. So, the 4.9% annual rate increase is only the tip of a very large iceberg. Shippers don't understand how much this is going to impact them.

Both UPS and FedEX added a surcharge for rural zip codes

Due to the increase in deliveries to rural addresses, another big policy change for 2020 involves a near 5% increase in the number of zip codes that incur a delivery surcharge. So because someone can now order something online and have it shipped for free to their homes, UPS has added a surcharge of over 18% for certain rural zip codes and the number of zip codes that this applies to has also increased.

Don’t wait to renegotiate your contract

In order to be proactive in managing shipping costs, companies need to be vigilant because the carriers are changing things on a weekly basis. Don’t wait until your contract expires to renegotiate the terms. You've got to pay attention to the fine print, and you've got to get back to the negotiation table immediately. We are currently running forecasts for all of our clients to determine the cost impact of these changes. Then we're challenging the carriers and renegotiating where appropriate. If we need to switch to a different provider because of these cost increases, then we will do that. It’s imperative to have good forecasting techniques in order to really understand the impact to your business. It's survival of the fittest, especially in the retail world, and shipping is one of the largest costs.  

Podcast #3: Reviewing the UPS & FedEx Rate Changes and the Biggest Supply Chain Developments in 2019


During the 2019 holiday season, both UPS and FedEx implemented peak season surcharges for three categories: Additional Handling, Large Parcel surcharge and Over-Max.

All three of these charges are designed to address large, bulky items that are increasingly moving through the small parcel networks, particularly during peak holiday season. UPS and FedEx don’t want this volume in their network so for an Over-Max package (150 lbs or greater) the Peak Season surcharge for UPS is $250 and for FedEx it’s $435. And that is on top of the $850 which is the regular surcharge for a package that size, so it’s $1,100 before you include the freight or the fuel cost. Ultimately this could add up to nearly $1,500 to ship that package through the network. To make it even worse, the UPS Peak Season surcharges are in place from October 1st to January 4th. Last year they started on November 18th. Not only did the costs go up drastically because of surcharges but also the amount of time that these surcharges are applied was the entire 4th quarter. FedEx did not roll out their surcharges until October 24th, so the duration was less, but the cost per package is higher. People really need to pay attention to when these charges go into place and understand how they are applied because there are very significant charges per package.

What to expect in 2020

Based on what we are seeing, there will definitely be additional rate increases in 2020. Changes to the fuel surcharge tables happen every year, as well as 2020 Peak Season surcharges. But we also forecast even more changes relative to the larger, bulkier items and new fees around the alternative delivery locations that you see popping up everywhere.

Companies have to pay attention

At SME, we use a Transportation Optimization Model and it all starts with visibility. The first step is accessing all the information and data and then making it transparent to understand the impact. It is only after we make sense of the data that we can turn it into something that is actionable. From there, we develop a strategy and continue to tweak that strategy based on the constant changes we see. Then it boils down to how well the strategy is executed. It’s also important that measurements are put in place on the back end to determine how successful the execution has been. The supply chain is dynamic - it is not static. It changes every day. We believe information is power. Companies have to constantly monitor the things that will impact them in order to be successful. If those four pillars are in place within your organization, whether you're using an external third party to help you or you're doing it via good internal management processes, you're going to be in much better shape. We think the model works, and we make sure those four key components are covered with all of our clients.

Listen to all three podcasts here.

Share this article:

Blog Posts

  • Categories