Understanding the Facts of Fees and Potential Impact
Despite the uncertainty in global markets and how COVID-19 will continue to impact individuals and businesses as we near the end of 2020, there’s little surprise in the 2021 general rate increases of 4.9%, recently announced by UPS and FedEx. Nor should there be any surprise to small parcel shippers when they evaluate the true effect of the new GRI to find that their actual increases, especially in key accessorial lanes, will almost certainly be higher than what was announced by the two main Carriers.
The cardinal rule of any Carrier rate increase is that the stated rate increase will rarely end up as the actual increase that you as a shipper will incur. 4.9% applies only to transportation rates, and as we know from past cycles, there are many common accessorial fees for both Carriers that will increase much higher than the stated amount. And while the overall average for each transportation rate increase per service, weight, and zone will somehow pan out to 4.9%, both Carriers have spent a good portion of time in 2020 to analyze each individual rate, targeting the highest increases in a way that maximize their profits. Without going into too much detail, here is an example of what one can expect using the FedEx increase as an example.
Increases for Ground and Home Delivery: For Ground shipments, those who ship packages weighing up to 5lbs. will see the highest percentage increase at over 6%.
In reality, most accessorial charges from UPS and FedEx are increasing by 5% to 10%.
Most shippers are aware of the potential impacts that the annual rate increase brings. However, 2020 has been quite different from years past with the introduction of COVID-19 related peak surcharges and related fees. In May of 2020, peak fees were imposed on shipments relative to the following:
- Ground Residential: including UPS SurePost® and FedEx SmartPost® Packages
- Additional Handling, Large and Oversize Packages
- International shipments destined to the U.S.
So along with the 2020 GRI, shippers were hit with many unexpected fees early in the year. And these fees have yet to go away. As we now know, many of them will continue through the holiday season and into January of 2021, some with increased rates. The unknown is whether these fees will be extended past January or whether further new peak fees will be announced. In addition, both Carriers have long suspended their money-back guarantee on freight services.
It’s anybody’s guess on how the current environment will evolve and whether that will justify the continuation of the Carriers current business practices. The one certainty is that shippers need to be aware of these fees and the possibility of an extension so that they can adequately prepare for the proper customer experience, as well as expense and budget allocation.
For a complimentary assessment of how the rate increase will impact you, please contact us. At LJM Group, we help clients understand the impact of fees and the annual rate increase. While it’s hard to avoid them, we successfully mitigate much of the risks and projected expenses associated with them.