Are we in a boom economy? One might assume so based on the historic rate increases announced by UPS and FedEx for 2011. Unfortunately, the truth is that most shippers are still feeling the economic pinch of 2010 (after the hard hit of 2009). That means it’s more important than ever to understand which rate hikes will have the most impact on your spending. Here are a few highlights:

Dimensional Weight (DIM) Factor: If you ship lightweight, bulk packages (e.g. luggage, pillows, etc.), beware. Carriers have substantially raised their margins through an increased DIM factor. In 2011, the DIM factor for UPS and FDX will decrease (causing the billed weight of packages to increase) by 16.9%, from 194 cubic inches per pound to 166 for domestic shipments and from 166 to 139 for international, a change of 19.5%. When combined with base freight and accessorial charge increases, shippers could be looking at cost increases of 20% to 30% for certain packages. 

Accessorial Rates & Minimum Charges: The jump in surcharges for 2011 marks the largest increases of their kind in history. Here are a few that will pack a powerful punch to your shipping spend in the coming year – 
• Delivery Area Surcharges: Up 6% to 10% over last year and 20% to 31% over 3 years.
• Residential Area Surcharges: Up 10% to 12% over last year and 20% to 26% over 3 years. 
• Declared Value Insurance: Up 8% over last year and 25% over 3 years. 
• Ground Address Corrections: Up 10% over last year and a whopping 84% over 3 years.
• Ground Commercial and Residential Minimum Charge: Up 7% over last year and almost 24% over 3 years. 

Announced Rate Increases (Long Zone Air Rates): Carriers excel at announcing “average” rate increases that seem justifiable at first glance. In reality, they can be very misleading. Take air rates, for example. UPS announced an effective 4.9% average increase for 2011, while FedEx announced an effective 3.9% average increase. What most shippers don’t realize is how the carriers arrive at these rate increase projections. Is it a straight average or is it based on a weighted average? Recent analyses of different shippers’ volume and weight distributions in addition to the net increases indicate the increases are closer to 6-7%. 

Rate increases aren’t the only thing that will increase your shipping spend in 2011. Other market forces such as capacity, staffing and legislative issues may also deliver a financial impact to your organization. 

To learn more about the rate increases and other factors shaping your 2011 shipping spend, check out John Haber’s article in the upcoming January/February issue of PARCEL.