Are You Prepared for 2015 FedEx and UPS Rate Hikes?

Posted on November 17th, 2014 by Ed Blickstein

 11/17/2014

Is Your Company Ready for the FedEx and UPS Rate Hikes and the Dimensional Pricing Changes?

By Jim Bisaha, Senior Logistics & Supply Chain Consultant for TSC

Both FedEx and UPS have announced a general rate increase of 4.9% for ground packages in 2015. In addition, FedEx and UPS are implementing dimensional pricing for all ground shipments.  The impact of these changes will significantly increase shipping costs.  It is estimated that 55% to 60% of ecommerce shipments less than 5 lbs could be impacted if there is no change in packaging and 30% of all shipments could be impacted

Small and mid-size shippers will be impacted as they do not have volume to negotiate or the resources to review and analyze their shipment data.

Listed below is a table that summarizes the impact of the changes on packages from one to fifteen pounds.

Sample Package  Zone  Actual Weight  DIM Weight  DIM Price Increase 
 A  3  1  2  9.3%
 B  4  1  3  20.2%
 C  6  1  4  24.5%
 D  8  1  5  38.3%

As you can see from the chart the heavier the package and the larger the zone numbers the greater the price increase.  It is extremely important that shippers understand the impact of dimensional pricing changes.

Parcel companies are cubing out not weighing out their trailers.  Dimensional pricing has been utilized by FedEx and UPS for air shipments and for shipments over 3 cubic feet.  The dimensional pricing changes are now for all shipment sizes.   Dimensional pricing is calculated by measuring the box by height, length, width and dividing by a factor of 166 to derive the dimensional weight.  The greater of the two weights actual or dimensional weight will be utilized to calculate the billing charges.

Listed below are some example illustrations of shipments and the impact that dimensional pricing will have to the monthly shipping costs. The examples are based upon 50 shipments a day.  The monthly costs will quickly add up and impact the shipper’s bottom line.

Women’s Shoulder Bag                                         

Video Game Controller                           Small/Medium Pet Bed
 Dimensions:  19x15x5  Dimensions:  12x8x8  Dimensions:  23x18x3
 Actual Weight: 2 lbs.  Actual Weight: 1 lb.  Actual Weight: 1 lb.
 DIM Weight: 9 lbs.  DIM Weight:     5 lbs.  DIM Weight:     8 lbs.
 Avg. Rate Impact: +28.3% Avg. Rate Impact: +29.7%  Avg. Rate Impact: +40.1%
Avg. Monthly Impact at 50 Packages/Day: +$2,311.43  Avg. Monthly Impact at 50 Packages/Day: +$4300.00 Avg. Monthly Impact at 50 Packages/Day:+$5,777.14

Prior to meeting with your parcel carrier representative, here are four areas to focus on so that your firm is prepared: parcel contracts, packaging, data analysis and processes/procedures.

Parcel Contracts.  It is important to review and understand your parcel contract.  Do you know your annual small package spend? What is spent by particular shipping product line: express, ground and international? What are the shipping patterns and what is the volume and spend by zones?  What is the percentage of discount off the base rate?  How much is spent on accessorial charges?

Packaging.  Most companies utilize seven or eight different box types.  Companies need to conduct an in-depth review of their packaging. Flat boxes or envelopes may need to be utilized for small light weight products. You may also want to consider a dimensional scanner.

Data Analysis. It is important to understand your shipment history and the products that your firm is shipping.  A detailed analysis of the shipment history by product type, zone, charges, dimensions and weights is a requirement. It is important for shippers to know their data better than the carriers.  If you don’t have accurate shipment history information ask your carrier to provide to you.

Processes and Procedures. Having documented processes and procedures for the shipping department is critical utilizing the right box for the right shipment will reduce costs. Process and procedures need to be documented and the staff trained on the package changes.

Other items for consideration are regional parcel carriers which constitute less 3% of the parcel market. Regional parcel carriers are located in specific geographic areas:

  • OnTrac is a west coast based parcel carrier
  • LSO (Lone Star Overnight) is a south-west carrier
  • Eastern Connection is an eastern and mid-west regional
  • Spee Dee Delivery is a mid-west carrier
  • Pitt Ohio Express serves the mid-west and northeast.

USPS could be an attractive alternative. USPS has recently implemented a price reduction.  They also have announced a rate reduction for Priority Mail Commercial (-2.3%) and Commercial Base Services (-0.9). This could result in a 30-50% decline in rates in the 6-20 pound range.

Transolutions Consulting can help your firm evaluate and develop a strategy to help your company contain raising parcel rates and costs.

Contact me at … jbisaha@transconsulting.com or call: (770) 639-2230

Jim Bisaha, Senior Consultant – Logistics & Supply Chain

TranSolutions Consulting LLC (TSC)

This entry was posted on Monday, November 17th, 2014 at 8:58 pm and is filed under Logistics News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.