5.9% Parcel Rate Increases Break a 12+ Year Trend, How Shippers Can Respond

Just in front of its’ upcoming earnings release, FedEx announced yesterday that it will raise shipping rates at the fastest pace in more than 12 years (see “Shopping Online is Getting More Expensive” for perspectives from the WSJ) . The average rate increase of 5.9% breaks a long-time 4.9% yearly trend that FedEx and UPS have typically managed in lock-step. With record ecommerce volumes, labor challenges, and persistent inflation, the faster than usual rate increases are not entirely unexpected, but still a challenge to many shippers struggling with costs.

With pricing power shifted to UPS and FedEx, many shippers could benefit from a review of their parcel shipping cost structure and operations performance. Read on for some ideas on where to start.

Ways to Save When Rates Increase 

If recent shipping rate increases have sparked cost concerns for your business, a quick review of core parcel workflows can uncover savings opportunities in multiple areas. A few ideas for an easy first “health check” review include: 1) freight terms and billing, 2) carriers and service levels, 3) use of special services, and 4) pack-and-ship processing accuracy.

Freight Terms and Billing

A freight terms and billing review can uncover opportunities to bill freight directly to customer carrier accounts and verify how completely shipping costs are being recovered. For example, if only 10% of your shipments are being third-party billed to customer carrier accounts, expanding this ratio would improve your cash-flow and often is viewed positively by customers. Analyzing reports on shipping costs and prices for both “prepaid and charge” and “prepaid” freight terms can help uncover situations where teams are either intentionally or accidentally triggering unrecovered costs.

Carriers and Service Levels

Beyond the basics of freight terms and billing integrity, many shippers also run a frequent review of both carriers and service-levels for delivered shipments. Depending on controls and policies for service class selection, reports may show extra costs from overrides intended to respond to customer expedite requests. Another angle to consider in carrier/service review is to expand your network use with regional parcel carriers such as OnTrac or LSO or to combine LTL with parcel shipping via zone skipping.

Use of Special Services

Fees for special services (aka “accessorials”) are other hidden costs that can creep up over time in unexpected ways. Most shippers are already aware of the many new surcharges and fees introduced by both UPS and FedEx during the pandemic. Since new fee types and higher fees are part of annual rate increases, reporting and analyzing actual use of special services is an important best-practice for cost management reviews.

Pack-and-Ship Processing Accuracy

In addition to an inspection of the pricing factors mentioned above, review of pack-and-ship processing accuracy is another common hot-spot deserving of frequent reviews. Mistakes like address corrections ($19.50 per package in 2022), oversize package ($110 per package and up in 2022), or missing residential service indicators (cost $5.20 per package in 2022) can all add up quickly. Use a report of top services used during shipping, review carrier invoices for actual costs incurred, or consider using the Pacejet Freight Auditing module to zero in on key charges.

For many shippers, the parcel cost structure and operating performance reviews mentioned here are easy to perform, generally use easily reported data, and can put a spotlight on quick-win opportunities. Trying to decide if you need to add additional carriers to maximize your potential for low rates? Take a look at our carrier network to see a list of parcel, LTL, and 3PL providers that integrate directly into Pacejet.