Introduction

United Parcel Service (UPS), a global leader in logistics, has recently announced its annual General Rate Increase (GRI) for the year 2024. With a standard increase surpassing 5.9%, businesses across various sectors are poised to experience a significant impact on their shipping costs. In this comprehensive guide, we delve into the nuances of this rate increase, exploring its extensive reach and providing strategic recommendations for mitigation.

Decoding the General Rate Increase

The General Rate Increase is a systematic adjustment of shipping rates implemented by UPS on an annual basis. For 2024, the announced increase is pegged at 5.9%. However, it is crucial to acknowledge that the real-world implications of this adjustment are far more extensive. Shippers, especially individual entities and small to medium-sized businesses (SMBs), are likely to experience double-digit increases when additional factors such as accessorial rate changes, rule modifications, and fuel costs are taken into account.

Understanding the comprehensive impact of this increase is essential for businesses aiming to navigate this change effectively. Proactive strategies and informed decision-making can serve as pivotal tools in counteracting the financial strain induced by the GRI.

Which Shippers are Most Affected?

1. Small to Medium-sized Businesses

SMBs, particularly those without pre-negotiated shipping rates, stand to bear the brunt of the GRI. In contrast, larger enterprises with custom-negotiated rates and a robust understanding of their shipping profile are better positioned to navigate the increase. The disparity in impact underscores the necessity for SMBs to engage in strategic planning and negotiation to mitigate the effects of the GRI.

2. E-commerce Retailers

The e-commerce sector, characterized by high volumes of package shipments, is poised to experience a substantial increase in operational costs. This necessitates meticulous budgeting and accounting to accommodate the additional financial strain.

3. Rural and Remote Shippers & Receivers

The GRI’s impact extends to deliveries involving rural or less accessible regions. Recent changes in UPS’s delivery schedule, including specified delivery days for certain remote zip codes, have a direct correlation with increased surcharges for these areas. Consequently, both businesses and consumers located in rural regions are likely to face steeper shipping costs.

Key Areas of Impact

1. Surcharges

The adjustment in surcharges is poised to extend beyond the base 5.9% rate increase. Numerous surcharges have witnessed a year-over-year increment exceeding 20%. Gaining a comprehensive understanding of your shipping characteristics is vital in this context. ShipScience, a logistics optimization platform, can play a crucial role in designing and implementing custom solutions tailored to your specific shipping patterns, helping to alleviate the financial strain induced by increased surcharges.

2. Dimensional Weight Pricing

Carriers have consistently reduced the dim factor/divisor over the years, leading to an increase in dimensional weight pricing. To counteract this trend and the accompanying rate increase, it is imperative to develop a thorough understanding of dimensional pricing. By negotiating specific contract items, shippers can effectively reduce costs. ShipScience offers expert guidance in this domain, assisting businesses in navigating the complexities of dimensional weight pricing and contract negotiation.

Strategies for Mitigation: How ShipScience Can Assist

1. Understand Your Shipping Profile

Gaining insight into your shipping patterns, including weights, zones, services used, and accessorials, is foundational to effective negotiation. By targeting your negotiations on the most impactful elements of your shipping profile, you can achieve significant cost reductions.

2. Optimize Your Packaging

Efficient packaging plays a pivotal role in mitigating costs associated with dimensional weight. Engaging a packaging engineer or consultant can provide valuable guidance in optimizing every cubic inch of your packages. Additionally, collaborating with a box manufacturer equipped with a Flexo Folder Gluer (FFG) can result in customized packaging solutions tailored to your specific business needs and the products you ship.

3. Explore Alternative Shipping Solutions

Comparison shopping, encompassing a review of rates and services from various carriers, can unveil cost-effective alternatives and hybrid solutions utilizing multiple carriers. This approach not only aids in cost reduction but also enhances the resilience of your shipping strategy.

Key Findings from the ShipScientists

In light of the recent announcement of UPS’s 5.9% General Rate Increase (GRI), paralleling FedEx’s annual adjustment, it is crucial to dissect the nuances that differentiate this year’s increase from previous ones. While the 5.9% figure represents a standard increase, minor distinctions between UPS and FedEx’s rate adjustments warrant attention.

Scheduled to take effect on December 26th, 2023, this increase follows a trend of escalating annual rate adjustments, deviating from the typical 3.9%-4.9% range to a staggering 6.9% last year. This trend reflects a year-over-year real shipper cost increase ranging between 8-15%, highlighting the escalating nature of shipping costs.

Changes are anticipated in the Delivery Area Surcharge (DAS), Extended DAS (eDAS), and Remote area zip code lists, potentially affecting additional zip codes and altering the shipping landscape. Specifically, zones rated at 2-3 are expected to shrink, while longer zones are likely to incur the highest increase. The flat increase of 5.9% does not paint the whole picture, as each customer’s unique shipment distribution will result in variations, with expedited services and almost all surcharges experiencing substantially higher increases. For instance, Additional Handling Surcharge (AHS) & Large Package Surcharge (LPS) could see an 18-21% increase, DAS/eDAS may rise by 5.4%-8.9%, and Residential Surcharge could increase between 5.9%-7.6%.

Understanding the psychology behind the GRI is key. The annual norm of GRIs has been effectively established by UPS and FedEx, shifting the shipping industry’s perception of price increases. The consistent and predictable nature of these adjustments has desensitized the marketplace, making these increases an expected annual occurrence, rather than an anomaly. When viewed in isolation, the idea of mandating double-digit cost increases year over year may seem egregious. However, UPS and FedEx have normalized this practice, showcasing their prowess in shaping industry standards.

With inflation currently standing at 3.7%, the 2024 net cost increase is positioned at 2-3 times the level of inflation, a trend that has persisted for the last decade. This context underscores the substantial nature of the GRI, far outpacing general economic inflation.

Additionally, the carriers’ strategic shift in terminology from “peak surcharge” to “demand surcharge” allows for greater flexibility in implementing surcharges. By redefining the conditions under which surcharges are applicable, UPS and FedEx have effectively untethered themselves from the confines of the Q4 peak season, enabling the imposition of surcharges based on their assessment of demand increases.

Conclusion: Navigating the New Shipping Landscape

While General Rate Increases have become a recurring element in the shipping industry’s landscape, adopting a proactive stance and developing a comprehensive understanding of their implications is crucial. By staying informed and adapting your shipping strategies accordingly, businesses of all sizes can navigate these changes effectively, mitigating potential cost increases and safeguarding their bottom line. ShipScience stands ready to assist, offering tailored solutions and expert guidance to help you navigate the complexities of the shipping industry and emerge stronger in the face of change.