The following article appears in the December issue of Response Magazine.
Some things are just unavoidable this time of year: holiday shopping lists, contemplating New Year Resolutions and Carrier Rate Increases. Like clockwork, major carriers are unveiling charts highlighting the rate increases for shipping packages and this year’s list is a lot to absorb.
What’s causing the spike?
Well, for one, a rise in residential deliveries (B2C) is causing a big margin reduction for carriers. Bundled deliveries are a lot tougher to come by these days (remember those things called “malls” we used to go to?) and carriers need to be sure they are getting the most bang for their buck when sending out their fleet of drivers. Before the ever-demanding world of online retail, truckers and shippers simply worried about how much things weighed. Now, consumers can get something as small as a tube of lip gloss to as large as a stair stepper delivered direct to their doorstep. If the carrier stuck with charging by weight given the amount of ground they have to cover, they’d lose money.
So what are some of the changes we can expect this coming year?
As we’ve mentioned in previous articles regarding these annual increases, specific rate changes by service, zone and weight and package size vary due to carriers’ response to market demand, target market share goals and an attempt to neutralize the very moves that our industry has enacted to lower shipping costs (or simply make them free). Perhaps the biggest surprise this year is that UPS and FedEx adjustments don’t mirror one another.
We took some time to highlight some of the main changes between the two carriers for you; however, it is important to realize that the percent increases illustrated below are averages across all weights and zones. Actual increase percentages for your product characteristics may vary.
Rates – FedEx Ground and UPS Ground will both increase by an average of 4.9%. The two carriers’ rate charts will not match this year.
FedEx will increase rates of its express products by an average of 3.9%. UPS Air services will increase 4.9%.
Dimensional Weight – One major differentiator is that FedEx will change the dimensional weight divisor for Express and Ground packages from 166 to 139. Dimensional weight is the relationship between the weight and size of a package. To calculate, multiply the Length by Width by Height of a package and divide by the divisor. The carrier uses the higher of the actual or dimensional weight. This change will result in more packages qualifying for dimensional weight, thereby increasing shipping costs. At the time of this writing, UPS has not followed FedEx’s lead and their divisor remains at 166 for these services, at least for now.
Surcharges
Effective February 6, 2017, the fuel surcharge percentage for FedEx Express and FedEx Ground shipments will be subject to weekly adjustment. Previously, the surcharge was based on a monthly average.
The Residential Surcharge for Ground packages will increase $0.20 with FedEx and $0.15 with UPS. The Delivery Area Surcharge for Residential packages will increase $0.20 with both carriers. Address Correction fees will increase by $1.00 per correction with FedEx and $0.40 with UPS.
Okay, great. So, what can you do as a marketer to protect your bottom-line?
Yearly shipping cost increases are inevitable, but smart marketers know how to protect themselves and manage costs. Understanding the market, knowing what programs are available to you and being willing to act are your tools to deal with annual rate increases. Your fulfillment partner is well versed in the industry, studying carrier rates and programs. Don’t be afraid to take advantage of this valuable resource, as fulfillment experts can make recommendations tailored to your unique needs and requirements. An experienced 3PL provider can leverage their volume for discounted rates and programs not readily available to lower volume shippers. Together you can understand the advantages and disadvantages with trade-offs between costs, speed of delivery, traceability and image/customer perception.
Here are a few other specific tips to follow:
Geo-target: Know where the majority of your packages are going, and then ship from there. By locating closer to your customers, you will reduce cost and time-in-transit. Also, take note of the recent Panama Canal expansion; which reduces costs of shipping to eastern ports that efficiently service the majority of US Consumers.
Lighten up! Marketers know that weight is a key determinant in shipping costs. Ongoing innovations in materials lead to lighter and stronger packaging options. Shave off a few ounces and put your shipping unit into a lower price bucket.
Size matters: Carriers can and will price packages by either weight or size – whichever benefits them most. Reduce both product and package size when possible.
Discriminate: Consider using separate packages for consumer-direct and retail. With consumer direct, it is critical to get your package weight and size correct. For retail, packaging has an additional objective.
FedEx increases go into effect on January 2nd, 2017. UPS increases go into effect on December 26th, 2016.
Don’t let the annual increases in shipping get you down. The key is to be proactive and make it your resolution to plan ahead for 2017. Recognize the value in your fulfillment partner and leverage their experience and knowledge to help navigate these tricky increases.