Effective December 24, 2017 (yes, you read that correctly), rates for UPS Ground, UPS Air, and International services as well as UPS Air Freight rates within and the between the US, Canada, and Puerto Rico will increase an average of 4.9%.
A complete analysis from Shipware will be forthcoming over the next week or so, and we will look at the impact of the rate increase in more detail. As usual, expect there to be a disconnect between the announced increase of 4.9% and reality in several key areas.
In the meantime, here are some important preliminary takeaways:
1. The DIM weight divisor on small packages measuring less than one cubic foot will be decreasing from 166 to 139. This will be a significant increase for shippers of smaller boxes and removes a key advantage that UPS enjoyed over FedEx who also applies a 139 divisor to these packages. If you ship primarily smaller boxes with UPS, you need to understand the impact that this will have on your business as it could amount to a substantial rate increase well above and beyond the announced increase of 4.9%. See the table below for some examples of how this change could impact rates. All examples use the zone 5 rate.
2. There will be a significant impact to shippers of larger packages that historically were not shipped via the parcel carriers, such as large screen TVs, trampolines, mattresses, etc.
- The Large Package Surcharge is increasing 14.3% to $80.00
- The Large Package Surcharge will apply to packages with a length exceeding 96 inches in addition to packages with length plus girth greater than 130 inches.
- The Additional Handling Charge will increase 10.6% to $12.00
- Over Maximum Limits Charge will increase 233% to $500. (Not a misprint, call your LTL carrier on these!)
3. The minimum net charge for Ground packages will increase 3.42% to $7.57.
4. The charge for an Address Correction will increase 18.7% to $15.90.
5. There will be a secondary rate increase to certain charges that will take effect on July 8, 2018. These will include the following:
- The Additional Handling Charge for US domestic packages weighing more than 70 pounds will increase 75.1% to $19.00.
- The Large Package Surcharge for US domestic residential deliveries will increase 28.6% to $90.00
Here are some highlights from the announcement, showing the changes to some of the more common surcharges, along with the percentage increase. As in recent years and as stated above, the largest increases continue to be reserved for those surcharges related to package size and dimensions. We also see significant increases to the Delivery Area Surcharge and Address Corrections.
Most shippers understand by now that there is usually very little correlation between the carriers’ announced average increase and the actual increase by service level, zone and weight. Additionally, shippers understand that the impact to their parcel budget can vary significantly from the announced average increase. The devil is in the details. A more thorough analysis by Shipware’s team of consultants will be forthcoming once the complete rate announcement can be digested.
Dave Sullivan is a Senior Consultant for Shipware, LLC, a San Diego based parcel consulting firm. Dave has over 17 years of experience in logistics and transportation with a keen understanding for how the carriers structure margin-based parcel contracts. Dave also has extensive experience in LTL contract and rate structure, parcel network design and contract negotiation. Dave has dedicated his career to assisting well-known companies dramatically reduce their shipping costs.