While being able to mitigate the General Rate Increase is the hope of every shipper, organizations must take the opportunity to evaluate all aspects of their carrier agreement and structure it so that it more accurately reflects their shipping profile. After all, you should only pay for the service you receive — and not a penny more. Let’s look at some of the unexpected charges you may experience with UPS and FedEx so you can lessen the impact of the increases.
Impact of Increases to Transportation and Minimum Charges
Stated increases aren’t always what they seem. As we see base rates increase, we know the Minimum Net Package Charge is increasing as well. From 2008-2013, the UPS Ground Minimum Net Package Charge increased almost 40%, from $4.20 in 2008 to $5.84 in 2013. In 2009, UPS and FedEx announced a 5.9% increase for Ground; the actual Ground Minimum Net Package Charge increase was 8.8% ($4.20 in 2008 increased to $4.57 in 2009). Similarly in 2011, the announced net Ground increase, inclusive of fuel, was 4.9%; the actual increase to the Minimum Net Package Charge was 6.8%. The minimum charge impacts the average shipper more than any other single zone and weight Ground rate. We want to watch the actual YOY increases on minimums and negotiate their reductions to ensure the discounts offered by our carriers are close to the discounts we are receiving. If your shipping profile lends itself to being near the minimum charge more and more each year, that discount effectively shrinks as the minimum net charge grows.
What does this mean to you? The floor is dropping in terms of packages being subject to the minimum charge — the higher the minimum, the more packages affected by it. If your packages dim, with the reduction to the divisor from 194 (2008) to 166 (2013), a package moving FedEx 2 Day, 5lbs, Zone 8 — dimming at nine pounds in 2008, 11 pounds in 2013 — will see a 67.6% increase in freight cost. Not quite the 3.9-5.9% announced year over year.
Impact of Accessorial Charges
While most of us focus on increases in freight costs to our bottom line, the pending increase to fees cannot be overlooked, especially if your product requires an Indirect Signature Label (up 12.5% in 2013 to $2.25 for FedEx). Delivery Area Surcharges on Domestic Air will increase from 7.5% for Commercial DAS to 8.3% for Residential to 7.7% for Extended (FedEx; UPS is up 7.5% for Extended). Address corrections are taking a heavy increase at 9.1% for both UPS and FedEx. If you get the address right with FedEx, but your account number is wrong (or it’s missing entirely) plan to see an $11 charge on your invoice (10.0%). The Domestic Air Residential Delivery Charge for UPS and FedEx is up 6.7% for 2013 ($3.20).
Impact of Actual versus Dimensional Weight
We understand what dimensional weight is, and how it is calculated, so let’s look at an example of how it impacts cost. Let’s take a FedEx International Priority package, Zone D, Actual Weight 5lbs, 14x12x10 Dimensions. In 2010 the dim divisor was 166, so your five pounds package dimmed to 11 pounds with a gross freight cost of $153.19. Same package in 2012, after two rate increases and a change in dim divisor to 139, now dims at 13 pounds with a gross freight cost of $190.92 — a 24.6% increase in freight cost. If we were to back up to 2008 we’d see a freight cost of $127.23 and an increase of 50.1%.
Conclusion
Three key points to remember as we enter the 2013 General Rate Increase are 1) Rate increases are greater than they appear, and Minimum Charges aren’t so minimum; 2) Accessorial Charges increase at varying rates with the GRI; and 3) Actual versus Dim weights—with just a small adjustment you could save thousands.
Brittany Beecroft, MBA, is the Small Parcel Pricing Manager for AFS, based in Shreveport, LA. Prior to joining AFS, Brittany spent 12 years at FedEx as a Strategic Pricing Analyst, analyzing over 5,000 agreements in her FedEx tenure. She consults regularly with some of the largest shippers in the world and is a sought after speaker and consultant.
Impact of Increases to Transportation and Minimum Charges
Stated increases aren’t always what they seem. As we see base rates increase, we know the Minimum Net Package Charge is increasing as well. From 2008-2013, the UPS Ground Minimum Net Package Charge increased almost 40%, from $4.20 in 2008 to $5.84 in 2013. In 2009, UPS and FedEx announced a 5.9% increase for Ground; the actual Ground Minimum Net Package Charge increase was 8.8% ($4.20 in 2008 increased to $4.57 in 2009). Similarly in 2011, the announced net Ground increase, inclusive of fuel, was 4.9%; the actual increase to the Minimum Net Package Charge was 6.8%. The minimum charge impacts the average shipper more than any other single zone and weight Ground rate. We want to watch the actual YOY increases on minimums and negotiate their reductions to ensure the discounts offered by our carriers are close to the discounts we are receiving. If your shipping profile lends itself to being near the minimum charge more and more each year, that discount effectively shrinks as the minimum net charge grows.
What does this mean to you? The floor is dropping in terms of packages being subject to the minimum charge — the higher the minimum, the more packages affected by it. If your packages dim, with the reduction to the divisor from 194 (2008) to 166 (2013), a package moving FedEx 2 Day, 5lbs, Zone 8 — dimming at nine pounds in 2008, 11 pounds in 2013 — will see a 67.6% increase in freight cost. Not quite the 3.9-5.9% announced year over year.
Impact of Accessorial Charges
While most of us focus on increases in freight costs to our bottom line, the pending increase to fees cannot be overlooked, especially if your product requires an Indirect Signature Label (up 12.5% in 2013 to $2.25 for FedEx). Delivery Area Surcharges on Domestic Air will increase from 7.5% for Commercial DAS to 8.3% for Residential to 7.7% for Extended (FedEx; UPS is up 7.5% for Extended). Address corrections are taking a heavy increase at 9.1% for both UPS and FedEx. If you get the address right with FedEx, but your account number is wrong (or it’s missing entirely) plan to see an $11 charge on your invoice (10.0%). The Domestic Air Residential Delivery Charge for UPS and FedEx is up 6.7% for 2013 ($3.20).
Impact of Actual versus Dimensional Weight
We understand what dimensional weight is, and how it is calculated, so let’s look at an example of how it impacts cost. Let’s take a FedEx International Priority package, Zone D, Actual Weight 5lbs, 14x12x10 Dimensions. In 2010 the dim divisor was 166, so your five pounds package dimmed to 11 pounds with a gross freight cost of $153.19. Same package in 2012, after two rate increases and a change in dim divisor to 139, now dims at 13 pounds with a gross freight cost of $190.92 — a 24.6% increase in freight cost. If we were to back up to 2008 we’d see a freight cost of $127.23 and an increase of 50.1%.
Conclusion
Three key points to remember as we enter the 2013 General Rate Increase are 1) Rate increases are greater than they appear, and Minimum Charges aren’t so minimum; 2) Accessorial Charges increase at varying rates with the GRI; and 3) Actual versus Dim weights—with just a small adjustment you could save thousands.
Brittany Beecroft, MBA, is the Small Parcel Pricing Manager for AFS, based in Shreveport, LA. Prior to joining AFS, Brittany spent 12 years at FedEx as a Strategic Pricing Analyst, analyzing over 5,000 agreements in her FedEx tenure. She consults regularly with some of the largest shippers in the world and is a sought after speaker and consultant.
