With the FedEx GRI that was announced several weeks ago, FedEx also announced increases to accessorial fees that will have a significant impact. This link provides a chart that highlights the changes.
Rather than going one-by-one through all of them, I would like to dive into the more commonly occurring assessorial surcharges to discuss what is happening today (and into 2018) beyond the GRI. To perhaps oversimplify, carriers are continuing to feel a shift in package characteristics across their delivery networks, which is causing a strain on their cost models. As a result, they are adjusting rates and assessorial surcharges to improve and preserve margin, given trends they see in the marketplace. As a result, here some of the highlights that could have meaningful impact on your shipping profile.
Residential Delivery Charge: A four to 12% increase
The residential delivery surcharge is increasing between four and 12% depending on mode and service level. Of note, FedEx Home Delivery is going up four percent, while FedEx Ground is going up eight percent. If you are a FedEx Ground shipper that is not able to pre-determine residential addresses for shipments, your residential surcharge is going up eight percent ($0.30 per package). Why is FedEx charging more for Ground vs Home Delivery? As FedEx Ground and FedEx Home Delivery are two unique networks, this is likely an effort to drive customer behavior to accurately identify residential deliveries and manifest accordingly. Pre-determining residential deliveries allows FedEx to take advantage of its more residentially-aligned Home Delivery product, rather than using the less-efficient Ground delivery network for residential deliveries.
Why is this important? If you’ve negotiated a residential delivery surcharge incentive, the incentive more than likely doesn’t apply when you mistakenly ship FedEx Ground vs. Home Delivery.
Additional Handling Surcharge: Nine Percent Increase for US/International Express and Ground
There’s a very large, disruptive shipper in the marketplace that is very effective at rate shopping and utilizing a number of different carriers and efficiencies. As a result of this large shipper, carriers are handling a higher percentage of harder-to-handle packages, e.g packages exceeding 48 inches in length, 30 inches in width, or 70 pounds in weight as well as things that are not in corrugated cardboard and others that can’t be moved via conveyor belt. The cost to move a non-conveyable package through a sorting facility is much more expensive, and as a result, FedEx is trying to price behavior and improve margin on these costlier packages. By understanding why you are being charged additional handling as well as what it might be costing FedEx through their network, you will be much closer to successfully mitigating those charges.
Address Corrections: Seven Percent Increase
Address corrections have long been a revenue generator for carriers. There’s really no specific rhyme or reason that carriers would continue to increase the charge related to address corrections besides this: they can. While there are administrative costs to carriers in these situations, it’s hard to say that their costs are increasing commensurate with the increase. The best way to overcome charges related to address corrections is mitigation through prevention. If you’re leveraging a BI platform that provides address correction reports, you need to be correcting your database on a frequent basis to eliminate repeat occurrences on the same address. Of course, you can certainly spend time negotiating this point with your carriers, but you must also establish internal best practices to make these often-avoidable charges go away.
Delivery-Area Surcharges: Three to Five Percent in the Continental US
Delivery-area surcharges (DAS) are another direct example of how carriers try to manage margin around changing delivery characteristics. As more and more folks live in DAS ZIP Codes and as businesses grow in a direct-to-consumer environment, carriers are having to deliver more and more packages to traditionally rural ZIP Codes. Thus, DAS is an attempt to align carrier rate structures with their increased costs that result from these shifts.
In addition to understanding stops per mile and how carriers categorize ZIP Codes for DAS purposes, you need to understand how a three-to-five percent DAS increase impacts your bottom line. Outside of having good data to understand the economic impact of these surcharges, you need to view your delivery characteristics through the lens of your carrier, particularly as it relates to revenue per stop. For example, are you shipping single one-pound packages per residence, or are you shipping a group of packages that are going to the same residence or location? What if you’re shipping commercial packages in DAS ZIP Codes and your delivery locations are in strip malls anchored by a Walmart? From a carrier network perspective, is that a good delivery or bad delivery? It’s most likely a dense delivery because the driver is probably heading over to Walmart to drop off 100 or so packages. Taking control of the DAS is really about knowing your delivery characteristics and arming yourself with good data. Sick of hearing about data, yet?
Beating a Data Horse
Carriers have taken notice that by shippers having good visibility and data around transportation rates, skilled negotiators have been able to negotiate very aggressive discounts. Carriers make up for this by imposing assessorial surcharges, which are more difficult for shippers to understand and/or quantify. However, by accessing good analytics through a business intelligence platform, you will have the comprehensive visibility required to assess the financial impact of rate increases, including accessorials. In almost all cases, I believe you’ll find that your overall increase will be something greater than the 4.9% increase that carriers like to announce.
Every year, shippers are left asking themselves, “Can I continue to take this five to seven percent increase on an annual basis and stay profitable and relevant in my industry?” So, what’s your answer, and what’s your strategy?
Glenn Gooding is President, iDrive Logistics and a renowned industry thought leader. On Wednesday, November 15, at 2 PM EST, Glenn will host an eTraining Workshop, where shippers will tackle carrier increases while learning how to design a best-in-class, go-to-market strategy for carrier procurement. Learn more and register for “Small Parcel Strategies: The Definitive Guide to Successful Transportation Procurement” by clicking here.