General Rate Increase (GRI) are probably three of the most hated words in the shipping industry. Established decades ago, the rate hikes help carriers to cope with increased shipping volume throughout their network.
The boom in e-commerce over the past few years has a lot to do with this increased volume, and that has resulted in additional costs incurred by the carriers. The carriers, in turn, pass that cost along to their customers in a fairly predictable manner. Each year, the base rate rises by about 4-5%, in addition to other accessorial charge increases.
As a shipper, it’s nearly impossible to avoid a rate hike; however, there are plenty of things you can do to minimize the impact on your business.
2018 Shipping Rate Increase: What To Expect
FedEx has already released its 2018 rate increase, and UPS won’t be far behind. Regardless of which carrier you choose, it’s time to prepare now.
So, how can you know what to expect? By examining recent GRI trends, you’ll get a better sense of what’s to come by identifying impacts on parcel spend for different shipping profiles.
For years, FedEx and UPS have largely moved in a similar manner when increasing their rates. All of that changed in 2017, when the two major carriers announced different rate increases for the first time in many years. FedEx and UPS continued going in different directions when each announced different approaches for a peak season surcharge.
While we’re waiting for UPS to announce it’s 2018 rate increases, here are a few things we’re expecting to see in the next year:
- Carriers will be more inventive with surcharges and other fees – As we saw with peak season charges, these additional fees will likely increase at a much faster pace than general service rates.
- Ground and air prices will increase at a fairly predictable rate – This year, FedEx increased its rate by 4.9%, which is in line with past price hikes. We expect to see UPS follow suit.
- Carriers will continue to make comparison difficult – For many years, both carriers have moved in the same direction when it comes to rate increases. After parting ways last year, we expect more of the same.
- Dimensional weight will become a larger factor in overall spend – Dimensional Weight became a major factor in 2017. As the volume of shipped packages continues to grow, we can expect the dimensional divisor to drop. The lower the dimensional divisor, the higher the surcharge.
What Does This Mean For You?
If you’re managing shipping spend, you’ll want to be ready when the new rates take effect January 1. Here’s what you need to know about the 2018 shipping rate increases:
- Understanding your shipping profile is critical – For instance, do you normally ship a lot of lightweight packages? If yes, then you should be prepared for an increase beyond 4.9% for your shipments, thanks to dimensional weight. If you normally ship to residences, you’ll likely deal with a residential surcharge on top of a general increase.
- Know how surcharges affect your shipping spend – Extra charges, such as the delivery area surcharge or a fuel surcharge, can cause a huge increase in your shipping costs. This is especially true if you are unaware of how they apply to your shipping profile. Additionally, incorrectly applied surcharges happen more often than you’d expect.
- Get industry benchmarks – Knowing how much companies similar to yours are spending on shipments will help you determine if there are potential savings to be had. A trusted partner, like Reveel, has a deep understanding of the nuances that drive pricing structures and can serve as a valuable resource.
How to Manage a Shipping Rate Increase
You already know a rate increase is coming. Here’s what you can do to minimize the damage to your bottom line:
- Know your data: We cannot stress this enough. Do you know what you ship? Do you typically use ground, air, or freight? To reduce your operational costs, you must know exactly what drives them. How much does an average package weigh? How far is it shipped? You can’t negotiate a better rate if you have no clue what you’re negotiating.
- Understand how prices are set: After understanding your shipping profile, it’s important to know how carriers set their prices. While the baseline increase is 4.9%, your price will likely rise even further as carriers continue to apply a greater array of accessorial charges.
- Audit your invoices: It doesn’t matter if you’re confirming a shipping spend or checking your receipt at the grocery store, it’s always prudent to confirm that the original cost is correct. Many businesses don’t take the time to thoroughly audit their FedEx and UPS invoices. When you don’t, you’re leaving money on the table.