At 5.9%, the 2024 general rate increases introduced by FedEx and UPS represent a significant added outlay only eclipsed by last year’s record-breaking increase, but shippers are now in a far better position to negate its impact with effective negotiations.
At this time of year, there is no rest for the weary. Many shippers, particularly those in the consumer arena, are still in the midst of the peak season rush, but regardless of what their day-to-day operations look like, another crucially important activity is at hand: setting budgets for the year to come.
As expected, shippers are again looking at sizeable general rate increases (GRIs) from FedEx and UPS. And as in years past, the trend of both carriers mimicking one another’s rate increases continued, with both FedEx and UPS announcing a 5.9% increase for 2024. UPS’s new pricing will go into effect on December 26, 2023, while FedEx’s new rates will kick in at the start of the new year on January 1, 2024.
Importantly, for both carriers the 5.9% increase in shipping rates only reflects the changes being made on each carriers’ rate cards for 2024. And as always the rate cards only tell part of the story. Neither FedEx’s or UPS’s 2024 rate cards, or the new GRIs introduced on them, include the many new surcharges, rules and fees now in effect that dramatically impact parcel shipping costs.
Hidden among the complex web of variables that impact what it costs to send any one package from one location to another, these factors are governed by numerous fine-print details in complex shipping contracts that include many constantly changing variables. For this reason, annual GRIs should never be used as the basis for annual shipping budgets.
Our data scientists’ analysis of the GRIs for FedEx and UPS over the past two years puts this reality in stark focus, while simultaneously putting the 2024 price increases in context. Consider the following:
●In 2021, our analysis – which applied the 5.9% GRI for 2022 and the new surcharges, rules and fees unveiled that year but not included on either carriers’ rate card to shipments our customers made in 2021 – showed that those same businesses would pay 12.8% more when shipping with FedEx, and 10.2% more when shipping with UPS if they made the same shipments in 2022.
●In 2022, our analysis – which applied the 6.9% GRI for 2023 and the new surcharges, rules and fees unveiled that year but not included on either carriers’ rate card to shipments our customers made in 2022 – showed that those same businesses would pay 9.1 % more when shipping with FedEx and 10.2% more when shipping with UPS if they made the same shipments in 2023.
Just as importantly, these “hidden” increases were broadly applicable. It was found that less than three percent of businesses would see their shipping costs increase by 5.9% – the GRI that year – or less in 2022. Subsequently, the same analysis for the 6.9% GRI for the following year, 2023, found that less than four percent would see their costs increase by 6.9% or less. Clearly, the GRIs should not be taken at face value, nor do they represent the parcel shipping cost increases that the vast majority of businesses will experience.
Perhaps not unexpectedly, this year’s 5.9% GRIs will result in more of the same. Our analysis shows that if they make the same shipments this year, the average FedEx customer will pay 8.17% more in 2024 than they did this year, and the average UPS customer will pay 7.72% more.
Yes, the difference between the GRIs and the actual cost increases shippers will face in 2024 are lower this year; however, these are still significant, budget-altering figures – particularly when one considers that last year marked the single highest GRI ever.
They are also highly problematic to some companies – UPS for example is changing how surcharges are applied to some zones – and as in keeping with past years, businesses that ship heavier or oversize items will be particularly hard hit. For both carriers this includes businesses that ship automotive parts, hardware, industrial supplies, furniture and other items that are larger or heavier.
Other increases of note include FedEx’s delivery area surcharges, and UPS’s address correction surcharges. Fortunately, an even more important, broadly applicable caveat must also be considered:
Carriers are eager to negotiate again.
Last year and the year before marked some of the most cutthroat negotiations we have seen over the past two decades. As many shippers know all too well, FedEx and UPS largely lacked capacity in their networks, with UPS’s “better not bigger” strategy playing out across the shipping landscape. More than a few customers of both carriers found that their efforts to negotiate better rates were met with great resistance and even cost increases for some that approached those conversations without real data and shipping intelligence in hand.
In more extreme cases, carriers even dropped some long-term customers completely – leaving them on their own to find new ways of moving their parcels. During this time, when carrier profits increased dramatically in the midst of ongoing e-commerce growth, opportunities to effectively negotiate emerged, but by necessity they were highly focused and strategically oriented to align with the carriers’ own business goals and dynamics. In many cases, the leverage available to shippers was more nuanced.
This year, the landscape is far different. We are seeing greater willingness at FedEx and UPS to aggressively negotiate far better shipping prices, terms and conditions in order to maintain or grow market share. While there are many dynamics at play – diminished e-commerce volumes, some disappointing quarterly results at FedEx, and UPS’s significant contract negotiations with employees, one thing is certain: this is an exceptional time not only for shippers to push back on the 2024 GRI, but to aim for significant concessions.
While every company is different and should approach each negotiation with their specific shipping profile in mind, all shippers should consider the following:
●Don’t miss this opportunity to negotiate: This is an exceptional time for shippers to negotiate to their advantage unlike anything we have seen in recent years, but don’t delay. As we saw in 2020, things can change dramatically very quickly;
●Focus on surcharges and minimums: Carriers are more willing than ever to make deals on the surcharges and minimums that by default can dramatically impact overall shipping costs. Both represent highly fertile areas of savings for most businesses; and
●Be prepared to assess whether discounts offered will impact your business: Both carriers are responding to most negotiations with a litany of concessions; however, it’s imperative that shippers determine if they will actually make a material impact on their outlays by applying them to their own shipping data.
This year’s GRIs are significant, serious increases that have the potential to upend the budgets of many shipping organizations and the businesses they serve, including omnichannel retailers and e-commerce companies. But for 2024, shippers should take solace in the fact that they also mark a return to a more balanced arena in which a shipper’s business is something carriers eagerly want. Now, more than ever, shippers that understand their shipping data and act on the insights within it to negotiate effectively will benefit from contracts that are far more favorable than those they lived with in recent years.
Josh Dunham is the co-founder and CEO of Reveel. Founded in 2006 to help shippers level the playing field for carriers, Reveel launched its Shipping Intelligence Platform™ in 2021. A SaaS-based analytics, contract analysis and negotiation solution, it provides shippers with the actionable insights they need to lower shipping costs right now, on their own. Reveel can show you exactly what the GRI impact will be for your specific shipping profile at no cost to you. Click this link to get your impact analysis.
