In-Depth: The 2019 UPS & FedEx GRIs

by LJM Group

There’s little surprise in the 2019 general rate increases of 4.9% announced by UPS and FedEx. Nor should there be any surprise for small parcel shippers when the actual impact, especially in key accessorial lanes, turns out to be greater.

What is surprising this time around is the actual timing of the announcements, with UPS waiting until early December to make their new rates known.  The delay created suspense amongst shippers and industry experts alike, as speculation abounded towards why UPS was stalling.  Could it be they may not match FedEx?  Would they pull back on accessorial increases?  Will their Ground tariffs differ from FedEx in 2019?  As you will see in this article, it seems that UPS’s pricing experts took extra care (and time) this year to ensure they stay ahead of the curve in finding higher rates to charge and newer ways to charge them.

Domestic Services

The cardinal rule of any carrier rate increase is that the stated rate increase, 4.9% in 2019, will rarely end up as the actual increase you as a shipper will incur.  4.9% applies only to transportation rates, and as we will see later on in this article, there are many common accessorial fees for both carriers that will be receiving increases much higher than the stated amount.  And as for transportation rates?  While the overall average for each increase per service, weight, and zone will somehow pan out to 4.9%, both carriers have spent all of 2018 strategically analyzing each individual rate, targeting the highest increases in a way that maximize their profits.

For example, let’s review the average increase for each carrier broken down by Domestic zone, with the highest increases in bold (tables below).  While both carriers are generally keeping their Ground rate increases slightly over 4.9% for the most part, it becomes apparent that they are targeting some of their steepest increases towards very specific Domestic Air shipments.  With Amazon Prime’s 2-day fulfillment model becoming an industry standard, it comes as no surprise that 2-day services are receiving some of the steepest increases domestically across the board.  As for overnight services, both carriers are targeting zones 7 and 8, taking advantage of the fact that if a shipper needs to get something across the country overnight, they will likely pay for the service out of urgency, regardless of cost.

We can further investigate the carriers’ motives in the two tables below, with increases broken down by weight range.  While the carriers seem to target their increases by zone, with the intent of maximizing revenue, cost reduction looks to be the focus when viewed from the weight perspective, falling into the established pattern over recent years as both FedEx and UPS continue their war on larger and heavier packages.

How will the two carrier rates compare against each other in 2019?  On the Ground front, after several years of varying minimums (1 lb. zone 2 rates) between the two carriers (though they only differ by 1 cent in 2018), both UPS and FedEx will be charging $7.85 in 2019 for this key metric.  The rest of their Domestic Ground rates match this pattern as well, as prices between the two carriers vary by a few cents at the most for each weight and zone.

In the Domestic Air categories, UPS’s rates have traditionally been priced at a slight premium compared to FedEx rates for 1 and 2-day services, while 3-day services have seen much higher base rates from FedEx (though FedEx will typically offer higher discounts and minimum reductions for 3-day).  This holds true through 2019, though with the service becoming more prevalent, 2-day Air rates, like Ground, sees little variance between the two carriers in 2019.

The ECommerce boom has popularized services like FedEx’s SmartPost and UPS’s SurePost, which utilizes the carriers’ ground networks while relying on the USPS to delivery shipments “the last mile” to a residential recipient’s mailbox.  SurePost is seen as the superior service in recent years, and UPS has taken advantage of this reputation by pricing it as such, its minimum charge at $7.74 higher than both the SmartPost and UPS’s own Ground minimums in 2018.  Unfortunately for residential shippers, UPS is targeting SurePost for some of their most aggressive increases in 2019: the minimum 1 lb. zone 2 shipment increased by 10.1% to $8.52, while the increase for continental US shipments between 1 to 9 lbs. averages out to 9.0%!  While FedEx’s 2019 rates are still pending, we can be assured that it will be lower, and there is a significant opportunity for FedEx to take “last mile” market share away from UPS provided they can step up their service and reliability.

International Services

With all the increases mentioned above, hovering well over 4.9%, how can either carrier still claim that number in their press releases?  After examining the International rate increases, you can tell how skillfully UPS and FedEx have manipulated these rates for their purposes.

How often do companies ship packages to destinations such as Western Europe, Japan, Canada, or China, as opposed to the Caribbean Islands, Middle East, or African countries?  As you can imagine, both carriers reserved some of their most modest increases to zones representing the latter group, such as an average 1.9% increase for Zone I (Caribbean) on FedEx Economy Export, 1.7% for UPS’s counterpart zone on Export Express Saver, or 2.6% for shipments to South America on UPS Export Worldwide Expedited.  (Good news if you’re one of the few shippers with warehouses originating in or receiving packages from specifically Dade or Broward Counties in Florida, as you’ll be taking some of the lowest International increases for UPS’s specialized Caribbean/South America Zones).  Meanwhile, shipments to the more popular zones mentioned above are taking increases (averaged across all weights per zone) of 6.1% to 6.7% from both carriers.

Import lanes show a similar story, though shippers will find unexpected relief for packages coming in from certain lanes such as Canada for Int’l Priority on FedEx (2.9%) and WW Express for UPS (1.9%), as well as those coming into the US from Japan for UPS (2.8% – 3.9%) and Priority on FedEx (3.8%).  Meanwhile, despite the fact that some of the highest average increases on Import hit shipments originating in Europe (up to 5.9% on FedEx Economy) and India (up to 6.3% on UPS WW Express), increases overall on Import services appear to be lower compared to Export and other domestic services, giving Importers already concerned about future geopolitical developments a bit of relief.

Though the above increases factor in averages across all weight ranges, like Domestic Air rates, both carriers are specifically targeting heavier billed weight shipments for their highest increases.  For example, Export shipments to Western Europe on FedEx Economy are increasing by 4.7% up to 6 lbs.; the increases vary and dip lower for some mid-weight shipments but starting at 20 lbs. and heavier.  the increases range upwards to as high as 7.5% (with occasional exceptions).  You’ll find similar patterns on UPS as well: Imports from China via WW Expedited increase by 4% up to 20 lbs., then slowly goes up 4.4%, then 4.7%, then 6% over 51 lbs., and finally increase by 7% for shipments over 100 lbs.  The one exception to this pattern is FedEx Import rates, where increases stay consistent for the most part between lighterweight and heavier shipments.

Accessorial Fees

The chart below displays the full list of accessorial increases announced this month by UPS.  As expected, some of the most dramatic increases target the carrier’s most undesirable freight types: heavy and bulky packages.  Both carriers moved in mid-2018 to issue separate categories of Additional Handling fees (and UPS separating Large Package between Residential and Commercial as well).  For UPS, starting in July Additional Handling Fees for shipments over 70 lbs. in actual weight increased from the standard $12.00 to $19.00, and Large Package Fees for residential deliveries went up to $90, as opposed to the standard $80.

All these categories are increasing even more dramatically in 2019, with a standard (commercial) Large Package fee going up to $95, while the residential Large Package Fee increases 27.8% to $115; however, considering that shippers were paying $80 for all Large Package Fees to start 2018, the actual increase for the residential Large Package Fee is actually 43.8%!  The same storyline applies to Additional Handling: while the AHS Weight fee increases by 21.1% to $23.00 in 2019, the effective increase relative to what shippers were paying to begin 2018 is 91.7%!

And let’s not forget UPS’s Over Maximum Limits Fee, applicable to shipments over 150 lbs. in actual weight, exceeding 108 inches in length, or 165 inches in length plus girth.  At $850 per package in 2019, UPS is hinting heavily towards its customers that such packages are very much unwelcome in its Small Parcel networks.

Along with steep increases of up to 9.7% for very commonly incurred surcharges such as Delivery Area and Residential Fees, other particular increases to note for UPS include Declared Value, which is increasing for the first time in many years by 16.7%, and a significant 80.0% increase to Third Party Fees, itself a relatively new fee assessed.  Let’s not forget too that all of this is in addition to changes announced and implemented in 2018, including the changes mentioned above to Large Package and Additional Handling Fees as well as mid-year increases to Over Max fees, the mid-year introduction of the Shipping Charge Correction/Audit Fee, the subsequent reduction of its threshold, and increases to both the rates and the methodology of Fuel Surcharges (which we will cover at the end of this section).

Now let’s examine FedEx’s accessorial increases, listed out above.  The theme to remember is that while the increases are bad, they are not as steep as UPS’s, whether it be in common fees such as Residential and Delivery Area Fees, or large/heavy package fees.  Like UPS, FedEx added a higher category to the Additional Handling Fee for shipments over 70 lbs. (marked in the above table with an asterisk, indicating the 2018 rate increased in September 2018), but all three Additional Handling Categories for FedEx will remain lower than UPS in 2019.  This includes the surcharge for AHS Packaging, which remains unchanged from 2018 at $12.00.  And if you must ship a package over $150 lbs., better to ship it via FedEx, which increased its fee to $675 in September of 2018, but is leaving it unchanged going into 2019.  Once more following UPS’s lead, FedEx is introducing a new Third Party Fee, though at 2.5%, it will remain lower than UPS’s increased fee going into 2019; FedEx’s Declared Value rates, which held a slight premium over UPS over the last few years will now be slightly lower after UPS raised their rates going into 2019 ($1.00 per $100 vs. $1.05, and minimum charge of $3.00 vs. $3.15 on UPS).  For reference, the below table compares selected 2019 accessorial rates for the two carriers, showing the premium UPS will be charging relative to FedEx:

2018 also saw the resumption of an old price war between the carriers, with both FedEx and UPS competing to see who could charge the most for fuel rates.  For FedEx, lower fuel rates, often 14-18% less than UPS, were  often presented by sales reps as an additional incentive for UPS shippers to switch carriers.  Starting in September however, FedEx increased their fuel surcharges to essentially match UPS in all areas including International Import, where FedEx was significantly cheaper.  In 2018, however, no good rate increase goes unanswered, and UPS responded by upping their fuel rates for Import by 50 basis points in October, and for all Domestic services by 25 basis points effective December 31st.  At the end of this article you will find tables comparing the fuel surcharges for both carriers at the beginning of 2018 and by the end of 2018.

For good measure, UPS is throwing in one last curveball; currently, the UPS Fuel Surcharge is calculated by taking a percentage of net transportation rates combined with certain accessorials such as Residential Fees, DAS’s, and Large Package Fees.  For 2019, Signature Fees, Additional Handling Fees, and Over Maximum Limit charges will be added to that base calculation, which means that for a Ground shipment at today’s 7.5% fuel rates, you will be paying an additional $1.07 for a standard Additional Handling Fee, an additional $1.73 for an Additional Handling Fee due to weight, and $63.75 extra for an Over Max Fee just in Fuel alone…as if you needed any more reasons to avoid Over Max shipments on UPS!

More Increases for 2019?

Given recent patterns of minor rate hikes and policy changes through the year of 2018, it’s very likely that we will see more “unofficial” rate increases from both carriers throughout 2019, as both carriers try to stake their claim in an increasingly dynamic and unpredictable economic environment.  With potential tariffs and an inevitable economic contraction on the horizon, near or distant, threatening the current eCommerce boom, and even as Amazon makes daily headlines whilst it expands its infrastructure to compete with certain segments of FedEx and UPS’s market share (such as last-mile delivery), it makes sense that both carriers are doing their best to milk as much revenue from their clients while they still can, before this current gravy train falls off a cliff.

While UPS current leads FedEx in both market share and higher surcharges, depending on a specific client’s industry or region, both carriers have shown in recent months that they may be willing to offer uncommonly aggressive pricing to convince a company to switch carriers.  This may come in the form of higher than usual across the board discounts to accessorials, waivers for all peak surcharges or third-party fees, or even a complete one-year waiver of the 2019 GRI!  The one silver lining with all these rate increases is that both carriers are still (somewhat) tied to the reality of just how much their customers can afford, and the savvy shipper can still find ways to avoid the full brunt of each successive GRI.

Appendix: Fuel Surcharge Changes in 2018


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