Lana Provost, a UPS package handler, loads packages into a truck at the UPS Centennial Ground Hub on December 6, 2021 in Louisville, Kentucky. UPS and FedEx have announced their delivery rates will soon increase by 6.9% on average. Jon Cherry/Getty Images via Getty Images
Even as they grapple with declining volumes, UPS and FedEx have both announced their delivery rates will soon increase by 6.9% on average. But the full force of their changes could cost shippers even more.
How much more depends on factors like the services they use, packages they ship and the destinations of their deliveries. Customers also need to consider larger increases for longer-distance shipments, additional handling fees and higher minimum package charges to reduce the sting of the hikes on their businesses.
“You can see how that will add up to be a very, very substantial increase for many, many shippers,” said Melissa Priest, founder and CEO of Alexandretta Transportation Consulting.
Rate increases support network enhancements while helping maintain high service levels, UPS said in an emailed statement. Executives for both companies have pointed to inflationary pressures as another reason for a larger rate increase than the year before.
But shippers are also grappling with a difficult macroeconomic environment, adding further incentive for them to push back against rate increases. With volumes declining from the dizzying highs of 2021, it’s possible that carriers will become more amenable to negotiated discounts.
Here’s what parcel shipping experts say customers should keep in mind when evaluating how the changes will impact their bottom lines.
Few differences between UPS, FedEx rate changes
UPS and FedEx have instituted nearly identical rate hikes across services and weight classes, according to an analysis by parcel and LTL spend consultancy Shipware.
Carriers’ base price increases don’t stray far from each other
|Next Day Air||7.68%||7.55%|
|2nd Day Air||7.64%||7.64%|
|3 Day Select|
Source: Shipware analysis. Note: UPS’ increases take effect Dec. 27, 2022. FedEx’s increases take effect Jan. 3, 2023.
“This year, the only meaningful distinction between both carriers is in the 3 Day Service category, where FedEx is taking a much larger increase,” according to Shipware. “This action should be seen as a ‘catch up,’ as last year UPS applied much larger increases to this service level.”
The similarities between the two aren’t a coincidence, said Kevin Miller, VP of data insights at logistics software provider Sifted. If one of the carriers decided to implement lower rate hikes than its competitor, its network would be overwhelmed by a surge in demand that would hurt service levels.
“They will always be pretty similar, because right now, one of them can’t absorb significantly more clients than the other one can,” Miller said.
Surcharges add further cost pressures
The 6.9% average increase doesn’t account for surcharges that can pile onto the final shipping cost. These include extra fees for residential deliveries, handling oversized packages and delivering to rural destinations — many that will become more costly when the new rates take effect.
Shippers should especially stay on top of fuel surcharges, as that applies to every package regardless of size or final destination, said Micheal McDonagh, president of parcel at AFS Logistics. The fuel surcharge percentages are subject to weekly adjustments by both carriers.
McDonagh’s colleague, AFS Logistics Chief Analytics Officer Mingshu Bates, provided one example to illustrate the extent of the surcharges: The cost to transport a surfboard from New York to Malibu, California, using FedEx’s 2 day shipping service would be $153.77 this month, but will total $173.28 come January, according to an AFS calculation.
Longer-distance shipments to see greater increases
FedEx and UPS’ rate hikes particularly punish shippers that need goods moved over longer distances.
Deliveries that fall under higher shipping zones will see greater increases. Rates for shipments spanning zone 5 and above will increase 7.8%, while rates for shipments in zone 4 or less will see a 6.6% average increase, Miller said.
One way shippers can reduce their exposure to higher-zone deliveries is to fulfill orders from facilities closer to the end customer.
“Whether you use 3PL companies or fulfillment center companies, adding additional warehouses is more important because people are so interested in getting their products faster, on time and for cheaper,” Miller said. “The only way to do that is to expand your network.”
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