In February, you will start to see your parcel expense budgets to be out line if you did not plan for the recent rate increases and dimensional weight policy changes. The two main drivers to the increases is the 2015 General Rate Increase (GRI) which was “advertised” as a 4.9% increase. The second part was the new rules for ground shipments (Fed Ex & UPS)which will be subject to new dimensional weight rules (LxWxH divided by 139=Dimensional Weight). The shipper will be charged on which ever charge is higher: actual weight or dimensional weight).

2015 General Rate Increase (4.9%)
This increase is not a 4.9% increase. This is what the carriers want you to believe it is. The actual increase is closer to 7.5%. There have been a number of consultants that have done analysis on this. I would recommend that you get a copy from one of them because it will provide a more detail view of the increase and it may be a document that you may need for your boss or CEO.

New Dimensional Weight Rule
This change in policy could increase your shipping cost by 30-40% based on the profile of your shipping characteristics. As a point of reference, I would recommend that you do a parcel analysis of your January 2015 vs January 2014. This will give you an insight to how this increase will impact you in 2015.

The combination of these two increases will orchestrate the largest price increase in the history of the parcel business.

Now for the fun part, how do I explain this to my boss or CEO? First, I would hire a Parcel Consultant (3PN) to review your shipping data and assist in developing cost savings ideas and action plans. Second, I would start using the USPS for all B2C shipments and evaluate B2B shipments too. Third, action all items that the parcel consultant recommends. If you do not hire a parcel consultant, then I would put together an explanation of the cost increase (supported by parcel industry articles and an action plan on how you plan to reduce your parcel cost. Here are a few to consider:

Cost Savings Ideas
1. Re-Negotiate your current Pricing Agreement
2. Utilize the USPS for most of your light weight B2C shipments
3. Review Regional Carriers (most do not charge dimensional weight)
4. Reduce Packaging size or get equipment that will do this on demand
5. Consolidate multiple orders to same customer into one box
6. Utilize a multi-carrier shipping systems to achieve Parcel Optimization
7. Use a parcel reseller or 3PL to take advantage of their volume discounts

In summary, the major parcel carriers are highly effective in their Pricing Strategies. Shippers of all sizes can effectively manage their parcel spend with the right partners and tools. Do not let your January credit card bill (aka FedEx or UPS Invoice) get you down. Take action on it now !!!

Michael J. Ryan is the Executive Vice President – Parcel Solutions at Pro Star Parcel and has over 25 years’ experience in the parcel industry. He can be reached at 708-224-1498 or michael.ryan@prostar.com
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