Optimizing Your FedEx Agreement: Old vs New Format

Last month we reviewed the UPS contract and how you should be interpreting your current UPS agreement or a new proposal.  For September, we will examine the standard FedEx Small Parcel Agreement. FedEx’s agreements are less labyrinthine than UPS’s agreements in some ways, but more complex in others.

In recent years FedEx has introduced a second, cleaner format of their standard agreement, but the differences between their two agreement types are mostly visual only as the basic structure remains the same.  The key concept to understand about the FedEx agreement is that it is always separated by sections for Express (Air) and Ground.  Depending on your business and account rep, you may have separate agreements for International Export and Import, as well, so the more diversified your shipment profile is, the more imperative it will be to ensure you have ALL your current agreements in hand before deep-diving into a comprehensive pricing review.

While UPS will sometimes create separate addendums for specific pricing items such as rebates, they will usually issue wholesale proposals covering all of the shipper’s volume with each new agreement superseding prior ones entirely.  FedEx is different however; the rule of thumb to know is that any current pricing not explicitly mentioned in a new proposal will still remain in effect after the new proposal is signed.  For example, if your FedEx rep issues you a new agreement with Ground pricing only, should you sign it, all of your current Express pricing remains unaffected.

Let us now dive into the FedEx Agreement.  While the older FedEx format goes directly to the pricing, the new format will begin with a table of contents and may, like UPS, outline the general terms of the contract between carrier and shipper, including such items as prohibited items, confidentiality, etc. in the following pages.  While UPS will have a separate page(s) outlining all the customer accounts with address information, etc., FedEx, whose accounts are often more consolidated, will list the applicable accounts within the body of the pricing pages.

Domestic Air

Assuming you have a complete agreement, the Domestic Express pricing will be listed first, with Base Discounts you are guaranteed of regardless of volume, followed by volume-based discounts.  Unlike UPS, FedEx has traditionally offered some level base discounts for their Domestic Air services, but recent agreements we have seen point towards a trend where all of a shipper’s Domestic Air discounts are dependent on volume.  Like UPS, FedEx calculates their volume requirements, called Earned Discounts, based on aggregate gross (undiscounted) transportation charges over the preceding 52 weeks; unlike UPS, which reflects this as a weekly average, FedEx utilizes a rolling annual total.  Similar to UPS’s portfolio tier ramp-up, FedEx will issue with each new agreement a Grace Period discount, usually between 4-12 weeks, that you will receive regardless of your volume.  It should be noted that sometimes we find that the Grace Period discount FedEx lists is actually lower than what a shipper’s volume would actually qualify them for, especially if they are switching carriers, so be sure to verify your Grace Period discounts correspond with your actual volume.

As we discussed in the UPS article, all transportation services are subject to a minimum charge, which is the Zone 2 rate for letter, pak, or one-pound shipments on Domestic services.  Reductions to the minimum will make the discounts more meaningful for lighter weight shipments, and your FedEx agreement will include minimum reductions on Domestic Express shipments.  Depending on the agreement format, they will be found along with the Base Discounts on older agreements, and at the end of the Express section on newer agreements.

On some older agreements you may find an Automation Bonus Discount, which rewards you an additional discount for using an approved device to automate shipments.  This discount has become scarcer as more and more companies move away from manual processes.

International Discounts

For some companies, FedEx may include International Air discounts directly under Domestic Express pricing.  For other shippers, especially those with more substantial international volume, FedEx will issue separate Export and Import agreements with pricing for international letters, paks, small parcel, heavyweight, and freight.  The bulk of the discounts will be incorporated within Base Discounts, as Earned Discounts typically account for a smaller piece of a shipper’s total International pricing compared to UPS.  FedEx may also include 3rd Country (shipments with neither origin nor recipient in the United States) pricing in this section as well.

One key difference in rate structures between the two carriers for International Air shipments is that, while UPS uses the letter or 1 lb. rate for each applicable zone as the default minimum, FedEx outlines their minimums for each zone in a separate table(s) found at the end of the Express section of the Agreement, after any accessorial discounts for Express.  These minimum rates are already reduced from the letter, pak, or 1 lb. rate, so default reductions that come alongside a standard proposal are rarer, though FedEx may include more aggressive reductions if you ask.  Note that the verbiage accompanying these tables state that they are subject to change with any increases to list rates, which means that any Int’l minimum table you have on your agreement are obsolete the following year after the General Rate Increase.

Ground Pricing

You will find the Ground portion of your agreement after the Express Pricing pages and International Minimum Charts, the latter if applicable.  Like the Domestic Express pricing, FedEx will present first your base discounts by weight range (which will be referred to as Weight Discounts going forward), followed by Earned Discounts.  Sometimes the Ground and Home Delivery discounts will be presented separately, but newer agreements trend towards the Weight and Earned Discounts combined and streamlined for both services.  Some older agreements used to contain a separate Base discount, to be added to both the Weight and Earned Discounts, but this original Base discount is exceedingly rare in recent years as FedEx will now simply incorporate it into their Weight Discounts.

For applicable clients, FedEx will include a section with both Base and Earned Ground Multiweight discounts.  Like UPS’s Hundredweight program, this price per pound service is geared towards multiple package shipments totaling over 200 lbs.  As with UPS, FedEx will assign a shipper a commodity tier (1-8, with 8 being the most expensive) that is theoretically based on a client’s product type, with denser commodities such as bricks or books meeting the Tier 1 requirements.  In practice, these commodity tiers are negotiable along with the stated minimum average package weight and minimum total weights outlined in this section.

Finally, for shippers looking for a comparable service to UPS’s Standard to Canada service, FedEx’s Ground to Canada pricing can usually be found in the Ground Agreement: near the beginning above Continental US Ground discounts by weight for older formats, and at the end in its own separate section for newer ones.

SmartPost

Some residential shippers may choose to utilize FedEx’s SmartPost service, which partners with the USPS for last mile deliveries.  While service levels vary across different regional networks and even individual drivers, it is usually acknowledged within the industry that UPS’s SurePost ranks as a superior service compared to SmartPost.  To account for that, FedEx will usually offer more aggressive discounts and minimum reductions on their SmartPost pricing, usually found after the Ground and Home Delivery sections, with separate Weight and Earned Discounts for shipments rated by ounce and by pound.  While UPS’s SurePost discounts typically lose their Base Discounts past 9 lbs., FedEx will sometimes extend their Weight Based Discounts up to 70 lbs. (note the SmartPost network will not accept shipments over 70 lbs.).  Some specialty shippers will receive separate pricing for SmartPost Returns or on Printed and Bound goods.  Similar to the Express Agreement, you will find any minimum definitions or reductions to Ground, Home Delivery, or SmartPost below their Earned Discounts in older agreements, and consolidated in one section at the bottom of the Ground agreement (before the accessorials) in some newer agreements.

The advantage to services like SmartPost is that in exchange for a possible day or two in additional time in transit, a residential shipper will be able to take advantage of deeper discounts and higher minimum reductions on lightweight shipments and avoid paying a Residential or Home Delivery Surcharge (currently $3.45 for FedEx).  It should be noted however that SmartPost shippers are not immune from Delivery Area Surcharges, though at $1.20 for standard and $1.70 for extended, they are lower than Ground or Home Delivery DAS’s.  These fees are negotiable however, and with the right strategy you can obtain discounts that will be reflected in the section below.

Accessorial and Dimension Weight Concessions

Like the rest of their pricing structure, FedEx will split their accessorial discounts and custom dimensional divisors between their Express and Ground agreements.  For Express agreements without International Pricing, this section will appear at the end of said agreement.  For Express agreements with International Pricing, this section will be placed after International Discounts (and Express minimum reductions on newer formats), but before the International Export/Import Minimum Charge Tables.  For Ground, it will be found at the end of the agreement after the SmartPost discounts and minimum reductions.

FedEx will first list the applicable terms of the accessorial discounts, which typically range from one to three years.  Then comes the list of fees, applicable service, and discount/reductions.  For Express, it is assumed that, unless otherwise stated, the discounts will apply to all Domestic Air services.  Any discounts to International fees will be explicitly stated as such.  On Ground, each fee will have listed next to it whether the discount is applicable to Ground, Home Delivery, or SmartPost; make sure all your bases are covered before signing!

Last but not least, we must review the MBG / GSR terms of your agreement.  While UPS usually does not include any language pertaining to Guaranteed Service Refunds (GSR) unless there is a specific waiver, each separate FedEx agreement will include its own verbiage specific to Moneyback Guarantee (MBG) entitlement.  This means that there will be one clause in your Express agreement, another clause in your Ground agreement, and additional clauses for your Export or Import agreements if you have separate agreements for those services.  Each MBG clause may vary, so it may be possible that you are entitled to MBG’s on your Ground and Import services but waive the right to file them for Domestic Express and Export.  Each agreement’s MBG / GSR language will be found at the end of the accessorial section.  If an agreement does not contain an accessorial section, it will be found following the pricing discounts.

Conclusion

We hope this article will help you better understand how to read and interpret a FedEx agreement, whether it’s your current pricing, or a new proposal your FedEx rep is sending you.  Additionally, we hope that this series helps you understand how each carrier presents their pricing in different ways unique to UPS and FedEx.  While both carriers continue to move closer and closer together in pricing with regards to freight rates, accessorials (the latest move being FedEx increasing their fuel surcharges closer in line with UPS’s), and oversize requirements, each carrier will continue to deliver its own brand of complexities to a transportation or logistics manager.