Have you ever wondered why the "advertised" rate increases for small parcel carriers never seem to add up? This is a question we have heard over and over, especially since both FedEx and UPS recently implemented their annual small package rate increases. The UPS rate increase took effect on December 29, 2014, while the FedEx rate increases took effect on January 5, 2015. As always, the extent to which your particular small package shipments are affected largely depends on many factors, including shipment volumes, sizes, weights and modes, as well as your company's national distribution locations.
Quick Facts: The General rate adjustment was announced as an average increase of 4.9 percent for U.S. and international shipments. Dimensional weight pricing will now apply to all FedEx Ground and UPS Ground shipments.
Based on this information, you may have thought that your current small package shipping rates with FedEx and UPS would have gone up around 4.9 percent for ground, express and international shipments. If you planned on this data to forecast and budget your 2015 shipping costs, you may be wondering why actual shipping charges are in reality higher and blowing out the budget.
Additionally, both carriers implemented dimensional weight pricing on all ground packages for 2015. This has resulted in significant increases depending on shipping characteristics. Average rate increases for FedEx and UPS are just that - average.
As in recent years, there has been an overall increase in shipping volume. The largest increase across all carriers has been packages weighing one to ten pounds, regardless of zone. The majority of that uptick is in packages weighing less than six pounds. The 2015 increase for all ground shipments ranged between two percent and seven percent over 2014 rates. If your shipping characteristics include a large number of residential or home delivery shipments, the increase on accessorial fees had a compounding affect. The ground minimum went from $6.24 to $6.61. That alone is a 5.6 percent increase. Depending on the number of shipments that consistently hit the minimum, this can have a major impact on your bottom line.
Residential or home delivery increases went from $2.90 to $3.10. That's a six percent increase. On average, 33 percent of ground shipments receive a delivery area surcharge of some sort. Obviously, shipping characteristics play a major part in the net effect of an annual average rate increase for you. 4.9 percent may be an overall average for the carriers, but some businesses have seen their shipping rates rise above 6 percent.
You may be surprised to know that fees for extra services can account for up to 20 percent or more of your total transportation costs.
(DIM) pricing to all ground shipments. Previously, only packages three cubic feet or larger were affected by DIM pricing. Implementing these DIM calculation changes has effectively caused an additional price increase and will affect more than a third of all U.S. ground shipments, on average. The new rules could result in significant rate increases depending on your shipping characteristics.
Dimensional weight pricing is a common industry practice that sets the transportation price based on package volume in relation to its actual weight. Carriers use DIM weight in order to account for the space packages take up in their transportation vehicles. This model encourages reductions in excess packaging materials and overall package sizes, leading to reduced fuel use, vehicle emissions and transportation costs. Once DIM weight is calculated, it is compared to the actual weight, and the higher of the two is applied. Density is the name of the game; make sure you review your packaging needs to reduce the size of your overall shipment and/or increase the weight. Avoid using oversized boxes that contain unused space and, where possible, consolidate orders to increase your shipment weight and density. By being more efficient with your packaging, you'll ensure you're not paying your carrier to ship "empty space."
In conclusion, the real effect of the 2015 rate increase highly depends on your company's packaging and shipping characteristics.
What does that mean to you?
Announced average rate increases paint an inaccurate picture of the true impact these increases may have on your business. For more information, contact Visible and talk to one of our shipping experts. We can help you understand the full impact of carrier increases and form a comprehensive transportation plan that will put you back in the transportation driver's seat. We can help with all your supply chain needs – from efficient packaging solutions to shipping plans that match your company’s shipping characteristics.
We have you covered.
Let one of our supply chain experts provide you with a free, no obligation shipping, packaging and fulfillment analysis to ensure you are getting the most out of your transportation spend. Contact us today (link to contact page).