UPS/FedEx and The Fiscal Cliff
By Ken Wood, President of LJM Consultants – Freight Auditing & Consulting
The good news is our country has averted going over the fiscal cliff; the bad news is your UPS/FedEx rates and surcharges have once again increased significantly. Like clockwork, both major parcel carriers, UPS and FedEx, have implemented their yearly rate increase, and once again they are masking the true impact of the increase by stating the following: Air and International Services will increase an average net 4.5% through a combination of a 6.5% increase in rates and a two percentage point reduction in the Air and International fuel surcharge. Ground Services will increase anaverage net 4.9% through a combination of a 5.9% increase in rates and a one percentage point reduction in the Ground fuel surcharge. Does anybody actually know what this even means? Thankfully, we do!!!
The operative word in the carrier rate increase announcement is average. It is important to realize that the announced rate increase is based on just that, an overall average, calculated by rating individual shipments weighing 1lb through 150 lbs to every cell in every zone. There is not a shipper in the United States who fits that shipping profile of being average. When you take a closer look at the carriers rate tables, you get a more realistic and accurate view of the actual increase and how the increase affects your particular business based on your companys unique shipping profile. If you are the typical small parcel shipper, the majority of your packages weigh less than 30 lbs. Guess where the highest carrier rate increases are? You guessed it. The increases on lighter weight shipments are considerably higher than the increases on heavier weight (less common) shipments. For example, a 3 lb ground package going to zone 3 increased by 8.94% while a 74 lb package going to zone 3 increased by 1.69%. Shipments weighing between 1lb and 10 lbs increased on average 8% while shipments weighing between 71 lbs and 150 lbs increased on average 4.7%. This is why the carriers can continue to quote an average increase of 4.9%. Your actual increase will be closer to 7.5% and that doesnt include the ever increasingSurcharges and Accessorial Fees.
|Ground Service||Air Services|
|Average Rate Increase||Average Rate Increase|
|1-5 lbs.||8.2%||Next Day Air Early A.M.||5.8%|
|6-10 lbs.||7.8%||Next Day Air||7.2%|
|11-20 lbs.||6.7%||Next Day Air Saver||7.7%|
|21-30 lbs.||6.1%||2nd Day Air A.M.||8.2%|
|31-70 lbs.||5.6%||2nd Day Air||8.0%|
|71-150 lbs.||4.7%||3 Day Select||8.5%|
What about the 2013 Accessorial Fees and Surcharges?
Unfortunately, the 2013 base rate increase is only part of the bad news. Package surcharges and accessorial fees can add as much as 30% or more to the cost of shipping a package. These additional fees, such as address corrections, residential surcharges, dimensional weight charges and delivery area surcharges (to name a few) account for a large portion of both UPSs and FedExs profits. Year after year, these surcharges and fees have been increasing at a higher percentage than the base rates and this year is no different. For example, the 2013 surcharge for an Address Correction increased to $12, up 9.1%; the Residential surcharge for ground shipments increased to $2.80, up 9.8% and the Declared Value (insurance) surcharge is now $.85 per $100 with a minimum charge of $2.55, up 6.25%. These surcharges coupled with the base rate increase could escalate your actual shipping costs by more than 10% over last year.
The following is a listing of the 2013 Accessorial Fees and Surcharge increases: They can take a large bite out of your profitability if not properly managed.
|Address Correction Fee:||Increased $1.00 from $11.00 to $12.00 (9.1%)|
|Residential Air Surcharge:||Increased $.20 from $3.00 to $3.20(6.7%)|
|Residential Ground Surcharge:||Increased $.25 from $2.55 to $2.80(9.8%)|
|Residential 100 Weight Surcharge:||Increased $1.70 from $26.00 to $27.70 (6.5%)|
|Delivery Area Surcharge Air Residential:||Increased $.25 from$3.00 to $3.25(8.3%)|
|Delivery Area Surcharge Commercial:||Increased $.15 from $2.00 to $2.15(7.5%)|
|Delivery Area Surcharge Extended Residential:||Increased $.25 from $3.25 to $3.50(7.7%)|
|Delivery Area Surcharge Extended Commercial:||Increased $.15 from$2.00 to $2.15(7.5%)|
|Delivery Area Surcharge 100 Weight:||Increased $.75 from $10.00 to $10.75(7.5%)|
|Declared Value (insurance) Minimum:||Increased $.15 from $2.40 to $2.55(6.3%)|
|Declared value (insurance) per $100:||Increased $.05 from $.80 to $.85(6.3%)|
|Delivery Confirmation Signature Required:||Increased $.25 from $3.50 to $3.75(7.1%)|
|Delivery Confirmation Adult Signature Required:||Increased $.25 from $4.50 to $4.75(5.6%)|
|Delivery Intercept surcharge:||Increased $2.00 from $15 to $17 for requests made by telephone (13.3%)and $1.00 from $11.00 to $12.00 for requests made via UPS.com (9.1%)
|Indirect Signature Required (FedEx)||Increased $.25 from $2.00 to $2.25(12.5%)|
*The listed Accessorial Fees are for UPS. FedEx Accessorial Fees vary slightly. For detailed FedEx surcharges and fees, visit http://www.fedex.com/us/2013rates/surcharges-and-fees.html
Understanding how your business will be affected by these rate increases is crucial to your companys bottom line. Two things that your organization can do immediately to help offset these increases are to:
audit your weekly carrier invoices with a professional third party auditing firm
get professional assistance and look to renegotiate your UPS/FedEx agreement immediately
If you would like to learn more about how these increases will affect your business please call me at 631-844-9500 or email me at kenwood@myLJM.com. LJM will provide a free consultative analysis and show you ways to mitigate these increases.
Additional helpful links:
http://www.rates.ups.com/index.html – 2013 UPS Rate Change Information
http://www.fedex.com/us/2013rates/rate-changes.html– 2013 FedEx Rate Change Information
* Increases mentioned are for UPS. FedEx increases are similar