On October 28, 2021, UPS announced their 2022 shipping rate increase.  The increase goes into effect on December 26th, 2021 and will apply to Ground, Air, and International services.  While carrier rate increases are nothing new, this year is especially different with the combination of a higher than usual stated increase, along with the incremental fee increases the carrier has already introduced throughout 2021 (such as the higher Additional Handling and Large Package Fees on higher zones), as well as the continuation of peak/COVID related fees well outside the traditional holiday peak season, and well over a year after 2020’s pandemic lockdown.

What does the rate increase really mean?

UPS shipping rates will increase by an average of 5.9% for Express, Ground, and Residential Services. UPS SurePost, which is generally used for low-weight residential shipments is also expected to have a rate increase but those rates have yet to be released.

Perhaps you had to read the last paragraph a second time.  After years of both carriers maintaining a “flat” stated increase of 4.9%, you can assume that, rather than representing the actual expected year-over-year spend increase, the 5.9% hike functions as more of a floor or bare minimum increase for most shippers. Below we will break down both the impact to transportation rates and additional increases to watch out for from changes to accessorial fees. Of course, when FedEx introduced their rate increase of 5.9% in September of 2021, it comes as no surprise that UPS has matched their so-called competitor.

Let’s start with transportation rates.  While the overall average for each increase per service, weight, and zone will somehow pan out to 5.9%, both UPS and FedEx strategically analyze each individual rate, targeting the highest increases in a way that maximizes their profits.

Let’s look at the average increase broken down by domestic zone.  While the Ground rate for packages over 11 pounds increases at 6%, packages between 6-10 pounds take a 6.3% increase with 0-5 pounds getting a steeper increase of 7%. A deeper dive will show where UPS is truly hoping to maximize their margins in 2022.  As you can see in the below table, the 5.9% stated increase has given UPS the leeway to truly increase the rates for services such as 2 Day AM and especially 3 Day Select.

With each annual rate increase, the carriers aim to both strategically increase margins while also driving shipper behavior to their needs.  While there’s no doubt that UPS’s profit margins will rise with the changes to 2022, the way they are choosing to do so is telling.  For example, on Overnight services the carriers will typically introduce lower increases on lower zones (less utilized) while raising the increases on mid to higher zones (more utilized) so that they can still average out to a number closer to the stated average. Like FedEx, this year UPS chose instead to dole out their higher increases on zones 2-4 on overnight services, either to “catch them up” with the zones they’ve traditionally focused on, or perhaps to discourage shippers’ interpretation of what they see as operationally inefficient service levels.

Like FedEx, UPS chose a modest increase for standard 2 Day Air, increasing most continental US rates by 4.9%. (The Puerto Rico Lane, however, is seeing an 8% increase, which brings the overall increase for this service to 5.2%). Regardless, it is interesting to see both carriers choosing to alleviate the pressure on many shippers  to meet the 2-day delivery model set forth by Amazon. Is it possible that both carriers are reacting to the long-awaited entrance of Amazon to the carrier market? Alternatively, perhaps they both recognize that customer expectations are shifting from 2 Day to 1 Day, or even same-day, thus both directing some of their heaviest increases to their overnight services. As multi-modal shippers are able to utilize alternative courier services to facilitate on-demand delivery to their customers in some urban areas, both UPS and FedEx are telling their clients that they have to pay extra to do the same.

The below table, which illustrates increases by standard carrier weight breaks, shows again the uneven distribution of carrier increases.  The typical carrier pattern has been to hide their steeper increases on lighter weight shipments with lower increases on heavier, less utilized weight breaks.  This remains true for some services in 2022, but as you can see, the increases remain consistent across various weights for 2- and 3-Day services.

All these tables, zones, and weights might be a little overwhelming, and a bit misleading, without detailed scrutiny. The carriers’ very intentions are to overwhelm you. And if you predominantly ship lighter weight items, there is one zone and weight you need to pay particular attention to: Zone 2, 1 lbs. This is your minimum rate, and without a minimum reduction the increases in the below table are what you will pay for many of your shipments across various low weights and zones, regardless of your discounts. Let’s examine how much UPS is increasing your minimum charges in 2022:

Not surprisingly, all of these minimum rates with the exception of 2 Day will be increased by more than 5.9%. Additionally, if you currently have a flat dollar reduction to your minimum, that minimum charge will be increasing by an amount higher than what is stated above. This is a good thing; it means you are already at an advantage compared to many other shippers and it also gives you yet another leverage point when addressing the rate increase with your carrier rep.

Finally, we’ll touch briefly on UPS’ international changes.  If you are an Int’l shipper, the good news is that the overall increase is not as drastic as we saw with FedEx, and the average falls under the domestic 5.9% increase. In fact, the increase for 2022 is lower than what we saw in 2021.  The exception, however, are import lanes from Asian countries such as China, Hong Kong, South Korea, and the Philippines; like FedEx, these lanes are seeing the highest markups going into 2022, albeit at ‘lower’ increases ranging from 6.5% – 7.8%.

Accessorials

Another area of focus never to be ignored is the accessorial fees. These charges are not ever highlighted into the rate mix by the shipping carriers because the rate increases in these areas are often much greater than the average increase of just the freight cost. The chart below illustrates some of the most common fees and the extent of the increase.  (It should be noted that UPS is continuing the zone-based Additional Handling and Large Package model it introduced in 2021.)

Lastly, UPS will be moving 2,692 zip codes from DAS Extended to Remote Area Surcharge (effective January 9^th, 2022), which could result in costs increasing by  as much as 3 times higher than in the past. The chart below shows the increase in zip codes falling into the DAS and Extended DAS categories over the past few years and now for 2022, the Remote US 48 category.  Depending on your shipping footprint to rural areas, this change could range from a minor inconvenience to a major headache. (We have a client that could incur an increase of over half a million dollars due to this shift!)

As you can see, technological advancements along with a rapidly changing industry are enabling the carriers to not just significantly increase your shipping rates, but to do so in an exponentially more targeted and strategic manner. If the carriers are getting smarter, so too must each parcel shipper in order to not only stay in the game, but to stay ahead of the story.