Written by Rich Harkey. Rich is a logistics and transportation expert. He is the Corporate Director of Sales for Lojistic, and helps companies find ways to save money on shipping. With 27 years of experience working in the transportation/logistics industry, he brings a wealth of experience, knowledge and perspective to his clients. Rich is an Associate of Strategic Choice Partners.
Navigating the 2024 Shipping Rate Increases
In the fast-paced world of shipping, staying ahead of rate increases is critical for sustaining a business’s financial well-being. In the midst of all the fun and festivities of the holiday season, another less exciting tradition has gained attention in the last few years. Both FedEx and UPS, the juggernauts of the shipping industry, have recently unveiled their General Rate Increases (GRI) for the year 2024.
Rate Increase Effective Date: Mark your calendar! The FedEx rate increase will take effect on January 1, 2024, while the UPS rate increase will happen slightly earlier, on December 26, 2023.
History of the GRI: The General Rate Increase (GRI) has become an industry-standard adopted by both FedEx and UPS. According to the carriers, these increases are designed to keep pace with inflation, offset rising operational costs, and act as a financial buffer for capital investments such as technological innovations, enhancements in service quality, and fleet maintenance. However, these incremental hikes have started to weigh heavily on businesses, especially those that are largely dependent on FedEx and UPS for their logistics needs.
Key Highlights From the 2024 GRI
While the advertised average increase of 5.9% for 2024 may seem like a slight downtick compared to the 6.9% hike in 2023, the devil is in the details. This is because the headline average often doesn’t factor steep hikes in various service levels, surcharges, and other fees that might make the impact to your business MUCH higher.
That’s why a deep dive into your specific shipping profile is important when trying to determine the true effect of these annual rate adjustments.
Here Are a Few Key Takeaways From This Year’s Rate Increases:
- UPS and FedEx’s 5.9% increase was a small “relief” from what many industry analysts thought would be a 6.9%-7.9% increase this year.
- The minimum charge for ground shipments increased by 5.9%, whereas the minimums for the primary overnight services from both carriers jumped by nearly 8%. The more significant overnight increase may be due to these service levels being guaranteed, whereas ground transit guarantees are still suspended.
- Surcharges have (again) taken a larger-than-announced increase. Weight and size related surcharges increased the most (Additional Handling ~20%, Oversize ~19%). The residential surcharge increased by more than 7% for both carriers.
- FedEx rebranded “peak” surcharges to “demand”, highlighting that these are likely being assessed permanently. UPS did this in 2023.
- The “headline” average increase of 5.9% will NOT be true for you. Most companies will experience a MUCH HIGHER increase. Disregard the announced average. Working with a company like mine (Lojistic) for a free analysis can help quantify the real impact of the 2024 GRI based on your unique shipping profile.
How to Offset the Increase?
Take Control of Your Distribution Costs: Don’t just accept shipping expenses as a “cost of doing business.” Dedicate time to understanding every nuance of your distribution costs. Whether it’s packaging sizes, warehouse management costs, logistic software solutions, or considering a 3PL, proactive cost assessment can save your business from unwelcome surprises.
Optimize Your Shipping: Cost-saving begins at the source. Don’t miss out on the opportunity to optimize your shipping costs. Evaluate elements like package dimensions, shipping times, and even shipping routes to identify savings that can be directly translated into your bottom line.
Engage with Your Carriers: Shipping carriers like FedEx and UPS are open to negotiation—especially if it means retaining your business. Nearly everything in your carrier agreement is negotiable. The trick is to know what specific levers will get you the greatest savings and how to ask. Be proactive, don’t accept anything that doesn’t align with your company’s shipping needs or budget. Start by conducting a thorough analysis of your shipping patterns, volumes, and pain points. This information becomes your bargaining chip. Equip yourself with industry benchmarks and data to strengthen your negotiating position.
Mitigate the Impact: Conducting a detailed analysis to assess the impact of the rate increase on your business is crucial. By pinpointing the areas most vulnerable to these hikes, you gain the strategic advantage to proactively adapt your operational approach. You’re not powerless in the face of rising shipping costs; many small but significant changes can make a substantial difference. Being armed with knowledge allows you to strategically steer your operations to absorb these changes with minimal disruption, enabling you to sustain or even improve your bottom line.
Conclusion
As the annual cycle of the UPS and FedEx rate increases continues, businesses are faced with the ongoing challenge of adapting to elevated shipping costs. While the announced average hike for 2024 stands at 5.9%, the actual impact can be more burdensome when you factor in additional surcharges and modified triggering criteria, possibly pushing the effective rate increase to a double-digit percentage.
To prepare for these increases, the first order of business is to gain a deep understanding of your specific distribution costs. Don’t just consider the overall number—examine the granular details that contribute to it. Second, scrutinize your shipping process for optimization opportunities. Lastly, don’t hesitate to negotiate with your shipping carriers. They have a vested interest in retaining your business, and many fees and limitations can be mitigated through open dialogue.
Increased shipping costs are a recurring challenge but not an insurmountable one. With diligent planning, analysis, and negotiation, you can soften the financial impact on your business. Tools like Lojistic’s free platform can be invaluable in this endeavor, providing the detailed insights you need to make informed decisions. The cost increases may be inevitable, but their effect on your business’s success doesn’t have to be.
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