New Year’s resolutions often begin with reflection. Last fall, our data scientists created a model that combined the 5.9% general rate increase (GRI) for 2022 announced by FedEx and UPS with the new surcharges, rules, and fees each carrier also introduced, but did not include in the 5.9% average increase. We then ran a macro level analysis by modeling the new rates against actual shipments our customers made the previous year to see the real impact on costs.
In that analysis, announced in December of 2021, we found that fewer than three percent of shippers would see their costs increase by 5.9% or less. We also said that in 2022 the average company using UPS would see its costs increase by 10.25% and that the average company using FedEx would see an increase of 12.86%. At the time those were eye-opening, even controversial findings – radical increases that quickly contributed to the pursuit of record revenues for both carriers.
Although accurate, we now know they were just the beginning. When Russia’s attack on Ukraine sent energy costs skyrocketing, multiple fuel surcharges followed. But unlike years past, even those included hidden costs. FedEx, for example, changed the table used to calculate fuel surcharges, a move that generated another 1.7% increase in profits over the actual surcharges. And in earnings calls, fuel surcharges were discussed not as the unwelcome cost increases customers grapple with, but as mechanisms that helped to drive sustained increases in revenue-per-package.
Then, of course, there was the 2022 peak season: new dates – for many FedEx customers, it began on September 5 – and of course more new surcharges. Combined, these factors left no question: 2022 was the most expensive year on record for shippers.
Keeping that in mind as we begin 2023 is important. The carriers have shown their willingness to take aggressive measures to increase revenues. And that is unlikely to change anytime soon.
There are, however, things all shippers can do to level the playing field and gain the intelligence needed to make the best shipping decisions with confidence. These new year’s resolutions can help ensure that you start 2023 on the right foot.
1. Know My Shipping Profile Better Than the Carrier: Despite historic increases – the 2022 GRI of 5.9 % was the highest ever introduced until the 2023 rate of 6.9% was unveiled, again with both FedEx and UPS announcing the same increase – there are still many ways to manage your shipping operation and lower spend.
It has always been imperative that you know your shipping profile better than the carrier does – former carrier sales representatives, myself included, will tell you that customers who understand their shipping profile, and have the data to back it up, enjoy a significant advantage over their peers when asking for discounts. This is particularly true today when carrier reps have more information to draw on. UPS’s CEO Carol Tome, for example, noted in the company’s Q1 FY2022 earnings call that reps would be using Deal Manager, a new tool that “is providing pricing analytics to our sales team as they go about negotiating deals.” Data is crucial and you don’t want to be outgunned.
2. Know My Shipping Vital Factors: Within your shipping profile, pay particular attention to your shipping vital factors. These are the key performance indicators that hundreds of shippers we surveyed pay attention to so they can manage their operations, monitor and measure their performance, and inform good decision making.
Shipping vital factors include service spend, surcharge spend, average cost per shipment, weight (average billed weight and the percentage of packages billed at their dimensional weight), minimums – the percentage of parcels that meet the minimum threshold for charges – and the average zone or zones you ship to most.
3. Use My Shipping Profile to Follow the Money: Armed with a keen understanding of your shipping profile and the vital factors that define it, look deeply into the areas where your operation is spending the most. Remember that GRIs are an average. They impact each and every organization differently and do not include the surcharges and rules that typically accompany them. It’s crucial to know exactly how they will impact your organization because of where you are spending.
Remember, too, that even small things can radically increase costs. For example, a small change in what defines an oversized package can exponentially increase the costs associated with some parcels. Don’t wait until you receive your first-quarter bill to discover them.
4. Be Accurate with My Budgeting: Every year, I see shippers take the announced GRI at face value and use it for budgeting; for example, taking last year’s 5.9% increase and increasing their budget by 6.5% just to pad it a bit, only to find out that the actual increase was twice that for their shipping profile.
If you know your shipping profile and follow the money, it’s possible to do an impact analysis on the new rates and the new rules to determine exactly how much it will impact your costs. Then forecast accurately and budget accordingly.
5. Make Better Strategic Decisions: Use modelling capabilities to analyze your shipping costs all the way down to the SKU level. With many thousands of shipments occurring each day, it can be easy to overlook problem areas.
For example, each year, many shipping leaders are surprised to find that specific products, often those that new rates and surcharges now categorize as oversize or subject to special-handling charges, are being sold and shipped at rates that actually lose the organization money. Analytics should also be used to determine if items truly need to be delivered via expensive services that expedite delivery times. For example, ground services can often get shipments to customers on the same day as air services in many metro markets. Whether the item is delivered at 8 AM or 10 AM may be immaterial to the customer.
Despite macro-economic trends, the shipping landscape will likely remain challenging into 2023. By considering these resolutions and reaching out to peers for assistance and guidance along the way, shippers can gain the insights and shipping intelligence needed to make informed decisions. We can’t dictate shipping costs, but we can determine how we address them and manage our operations to not only optimize costs, but also the many ways that shipping performance can impact top-line and bottom-line results.
Josh Dunham is CEO and co-founder, Reveel. Visit www.reveelgroup.com for more information.
This article originally appeared in the November/December, 2022 issue of PARCEL.