UPS and FedEx have now published their 2018 rate increases. Though the U.S.’s two largest carriers’ strategies have diverged slightly in the last few years, their 2018 price increases look a lot alike — both are raising rates by 4.9%, increasing surcharges even more, and hitting large and heavy packages with the heaviest fees. Also, carriers’ new fee schedules show that holiday surcharges are here to stay.
FedEx’s new rates take effect on Jan. 1, 2018, while UPS’s come into play a week early, on Dec. 24, 2017.
As you prepare to negotiate 2018 contracts with the general, use your existing shipping profile to budget for 2018.
How much will you be paying in additional surcharges or large package fees? Is the change significant enough to make you consider switching carriers? There’s still time to understand what these rate changes mean for you.
Across-the-Board Increases Steady at 4.9%
Both carriers will implement an average increase of 4.9% in 2018 — exactly in line with what UPS did in 2017. FedEx raised its Ground and Home service rates by 4.9% last year, but only increased its Express service rates by 3.9%.
This year, FedEx is increasing its base rates by 4.9% on average, with the exception of FedEx One Rate, which will only rise 3.5%. UPS will increase its base rates by 4.9% on average, with no exceptions.
General rate increases of 4% to 5% have been standard for both FedEx and UPS for nearly a decade, so companies likely budget with these in mind.
Carriers really increase profits by ratcheting up surcharges and additional fees — and those are the changes that can take shippers by surprise.
Bigger Fees for Bigger Packages
Dimensional weight continues to play a leading role in UPS and FedEx’s pricing models, as bulky but lightweight packages take up more and more space on trucks.
Both companies will drop their dimensional divisors to 139 for all packages in 2018.
In the last five years, dimensional divisors have fallen from 194 to 166 to 139. The last holdouts, FedEx Smart Post and UPS’s divisor for packages smaller than one cubic foot, will both fall to 139 in 2018, matching dimensional divisors across the board.
Also, executives will see new surcharges focused on large packages.
FedEx will implement the following surcharges beginning Jan. 22, 2018:
- An additional handling surcharge for packages longer than 48 inches on their longest side. Previously, the threshold was 60 inches on the longest side.
- An oversize package surcharge for packages more than 96 inches in length or 130 inches in length plus girth. That’s about a 25% drop from the previous dimensions for oversize packages: 119 inches in length or 165 inches in length plus girth.
- FedEx will impose a 2.5% third-party billing surcharge, following the lead of UPS, who implemented this accessorial in 2016.
UPS will implement the following surcharges in the coming months:
- The large package surcharge will rise to $80 on Dec. 24, but dimensions will not change. On July 8, 2018, it will rise again, to $90.
- The additional handling surcharge for packages weighing more than 70 pounds will rise to $19 per package on July 8, 2018.
Holiday Surcharges Are Here to Stay
FedEx and UPS have both imposed peak-season surcharges in November and December for several years, and in 2017, their strategies diverged slightly: UPS imposed a per-package surcharge at rates that vary from week to week, while FedEx created a steady fee schedule that increased rates on the largest packages.
In 2018, those fees remain, and UPS’s rise slightly.
UPS slightly increased rates on all packages for the week before Christmas, from a range of 27 to 97 cents to a range of 28 cents to 99 cents. The surcharge for large packages will rise from $24 to $26.20, and an additional handling surcharge of $3.15 will be added to some shipments.
FedEx did not announce any additional peak season surcharges for 2018, but it has increased surcharges across the board — notably oversize and additional handling charges, discussed previously, plus a 7.8% increase in residential surcharges for Express and Ground shipping. All of those changes will affect holiday shipping too.
Using This Information to Your Advantage
As your company’s executives begin to understand what these rate changes will mean for your business, communicate regularly with your carrier representative to see if there are any exceptions that might apply to you or any surcharges you hadn’t noticed. Then, review your financials and determine the impact of rate increases on your bottom line.
As always, knowing your data — what you ship, how large and heavy the average package is, and how far packages travel — puts you in the best possible position for negotiation.
If your packages are generally small and light and dimensional divisor changes and weight surcharges won’t affect your shipping spend, focus instead on holiday surcharges or zonal rates. There’s always a part of your contract that can be improved.