Most shippers are already all too aware that for the second year in a row the nation’s two largest carriers, FedEx and United Parcel Service (UPS), introduced record-breaking annual general rate increases. Unfortunately, the highest general rate increase (GRI) ever introduced by either carrier, 6.9%, is itself a gross underestimation of how shippers’ costs will really be impacted in 2023.
Today, as businesses begin to budget for their shipping costs and the numerous business imperatives they directly influence – including product pricing, product packaging and marketing efforts that depend on free or discounted shipping – it is imperative for shippers to remember that the GRI is but one way that carriers increase year-to-year costs. Our analysis of the 6.9% 2023 GRI from FedEx and UPS regrettably makes this point very clear.
As in the past, our data scientists created macro level analysis models that combine the new GRIs and new fees, terms and conditions, and then applied them to millions of real shipments that hundreds of companies made last year to see how costs changed from one year to the next. The resulting, apples-to-apples comparison revealed a number of findings, including:
● The average UPS customer will pay 10.2% more in 2023 than in 2022;
● The average FedEx customer will pay 9.1% more in 2023 than in 2022;
● Only 3.3% percent of shippers will see their costs with either FedEx or UPS increase by 6.9% or less; and
● And, as with last year, companies that ship heavy or over-sized parcels – including industries like auto parts, furniture, home goods and sporting goods – will be particularly hard hit.
Some of this is to be expected. Experienced shippers know that GRIs never tell the whole story. New rules governing everything from zones, to parcel dimensions, new fees and surcharges greatly impact total shipping costs, and are far less overt and more difficult for customers to identify given the litany of factors that influence every parcel shipment.
What is different this year, beyond the fact that again both carriers again unveiled the same GRI and again increased it more than ever before, is that these increases come on the heels of unprecedented efforts by the carriers to increase their revenue-per-parcel, or RPP – a fact that led both carriers to achieve record revenues going into 2022.
Shippers are also all too aware of the dramatic cost increases they incurred this year, beginning with the 5.9% GRI for 2022 that rapidly escalated into a series of fuel surcharges and new rules designed to dramatically grow RPP. Examples include FedEx’s decision not only to impose fuel surcharges as global energy costs skyrocketed, but to change the tables used to calculate them in order to generate even more revenue. Then there was the company’s decision to begin imposing peak season surcharges on September 5, 2022 – a month when our macro level analysis saw companies ship 1% less than the monthly mean.
Businesses felt not only the top-line and bottom-line impact of these increases, but in many cases were also met with a robust response in negotiation efforts. Things are different now; however, and it’s important for shippers to take proactive steps to negotiate their 2023 prices, terms and conditions in the coming weeks.
In order to do this effectively shippers should know their shipping profile in detail. Follow the money, know which discounts have the biggest impact and which of your product lines are most affected by the GRI, and act quickly because there will be many more shippers getting in line to try and minimize the GRI impact.
For example, as the analysis illustrated, this is particularly true for oversized parcels. New handling charges and evolving rules governing zones can make entire product lines unprofitable. Now is the time to act and find alternatives.
Josh Dunham is the co-founder and CEO of Reveel, founded in 2006 to help shippers level the playing field for carriers. The company’s Shipping Intelligence Platform™ provides shippers with the actionable insights they need to make decisions that optimize their operations and deliver opportunities to save money now. The company also offers a free GRI Impact Analysis https://info.reveelgroup.com/free-sign-up to see how the complex web of rules, fees, and surcharges for 2023 will impact their business.
