United Parcel Service (UPS) surprised a lot of us last week with an early announcement on 2017 rate increases. Though the teaser was a couple months earlier than expected, it shouldn’t have shocked any of us — we all knew annual rate hikes were coming. Are you nervous? Don’t be — unless you fail to act.
Every time the carriers change rules and rates, you see two types of shippers: the prepared and the nervous. Businesses are either anchored by an in-depth knowledge of their shipping characteristics, or they are adrift without this necessary knowledge.
Which type are you?
A Recap on UPS Rates and Rule Changes
UPS announced the following increases, effective December 26, 2016:
· 4.9% average net increases to general Air, Ground, and International rates
· Additional Handling surcharge rule changes from 60 to 48 inches for Air and International
· Accessorial Surcharge increases:
-- $0.35 for Additional Handling
-- $0.40 for Address Correction
-- $0.10 for Delivery Area Surcharge (commercial extended and residential, domestic)
-- $0.15 for Residential Surcharge (Ground and Standard to U.S., Canada and Mexico)
· ( Click for the full, up-to-date list of UPS 2017 surcharge increases)
In addition, UPS Freight announced a 4.9% general rate increase, effective September 19, 2016.
Brace for Impact
Is your head spinning after you followed the link to the long list of increases? Brace yourself, because we’ve barely scratched the surface of how complex and confusing parcel shipping can be. There are a lot of pieces to understand and to factor into your shipping costs as well as your agreements.
For example, as our team analyzes the full rate charts (rates.ups.com), we’re seeing carriers repeat what they’ve done every year: instead of applying a 4.9% increase to each zone and weight, they distribute 7.9% to one zone, 5.8% to another, and 3.5% to another, balancing out to 4.9% average. As for the minimum ground charge (zone 2, 1lb) which impacts everyone, that will jump 5.5%, from $6.94 to $7.32 — well-above the published average. Check out this UPS domestic ground chart to see which zones and weights will increase the most next year (Percentages highlighted in red reflect increases above the 4.9% average).
The Additional Handling rule change is another example of why you need to understand your unique characteristics now better than ever. How many packages do you ship with a side longer than 48 inches but shorter than 60? With the change, each piece of the inventory you just pictured will get slapped with an extra $10.85 for air and international services next year. That could hit you hard, unless you take action today.
Now is the time to look at your characteristics and determine whether you need to renegotiate or repackage, and whether you’ll absorb costs or pass them on to customers. Do you know how the rule change will impact your bottom line?
An Interesting Note
UPS announced that the rate changes will take effect on December 26, rather than the first Monday of 2017. I suspect they did this to offset the most operationally inefficient week of the year for the company. After Christmas Day, shipping volumes suddenly drop and carriers find themselves seasonally over-staffed, resulting in high costs and low profits. Implementing the rate increases early will certainly soften the blow.
Take Away
If there is anything I’ve learned from working with thousands of companies, it’s that knowledge really is power. When you know your package shipping characteristics, you are more likely to prepare yourself for complex changes in rates and accessorial fees. But you knew that. Nearly every article you read on this website or elsewhere, at some point, discusses the importance of knowing your data inside-and-out. The question is, how are you analyzing it and do you know what to do with it? Are you benchmarking your data or are you carrier-cost-modeling it? These are important questions, and starting now, you have two extra months to prepare for changes. Will you be ready?
Learn More at Parcel Forum ‘16
Join Mr. Rothwell and his team on September 14th in Dallas, Texas for a more in-depth analysis in the “2017 Rate Impact” learning pod, brought to you by Parcel Forum ‘16.
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Shaun Rothwell (Founder and CEO, iDrive Logistics) is the small parcel industry’s leading data and cost model expert. With 23 years of experience in the small parcel and logistics industry, Shaun has helped thousands of companies with supply chain optimization and shipping cost reduction. Visit iDriveLogistics.com for resources on optimizing costs, or click here to access a complimentary worksheet that will help road-map your cost reduction efforts. To find out more about how cost-modeling can help you prepare for the coming rate changes, contact iDrive Logistics at shipsmarter@idrivelogistics.com or call 888.797.0929.
