Each year small parcel carriers institute a General Rate Increase (GRI). Given the impacts of Covid on carrier network capacity and the additional capacity burden on the less profitable residential network, 2021 will bring significant GRI increases. For example, FedEx has already announced a general rate increase for 2021 of 4.9% to 5.9% on many services, beginning January 4, 2021. The increase applies to FedEx’s Air and International, Ground, SmartPost, and Freight customers. Accessorial fees will also not go untouched. FedEx will make changes and additions to close to 40 accessorials, fees, and surcharges. The impact on individual shippers will vary greatly depending on package characteristics, shipment type, and ship to locations with large package shippers realizing the highest increase. In addition to the rate increase, FedEx will also institute a 6% late payment fee.
As carriers experience an increase in e-commerce residential shipments for over-sized items, additional
handling charges may also have a larger impact on a company’s total transportation spend. For example, effective January 18th, 20201, FedEx’s new trigger for additional handling dimensions is 105” combined length plus girth (length and girth = length + 2*height + 2*width).
The impact of the added volume to the carriers ground network is evident in UPS Q3 earnings. UPS’s quarterly profit beat expectations, but shares dropped 5.5% as investors scrutinized the drop in margin due to the pandemic. Highlights of the Q3 UPS earnings:
Ending a challenging year of from the pandemic, with a higher than expected peak holiday surcharge is continuing to stress the carrier networks.
But what does that mean for 2021? Here are 3 tips to consider as you close out the year of the pandemic and ring in 2021.
1. Develop dynamic models to forecast shipment costs with consideration of standard GRI, volume increases/deceases, accessorial fees, minimum charges and zone increases. Examine the models to determine options for mode shifting, packaging changes, and other areas to minimize cost per package increases. The increases will NOT have the same cost per package impact for all shippers. For example, a low weight e-commerce ground shipper on FedEx will have 6%+ increase for the 1-5lb packages.
2. Re-examine your distribution center locations. Shippers with one coastal distribution center will a national customer base will see larger increases due to longer zones than their competitors with regional distribution centers. Again, modeling the financial and operational impact of an additional distribution center or centers arms you and your team with the data needed to make informed decisions.
3. Evaluate your shipping options and incentives at checkout. Many B2C companies during the pandemic provide additional incentives for online orders picked up a store locations or central locations. There are many different options for shippers to explore.
If you have additional questions about potential cost increases, Treya can assist with modeling and comprehensive analysis of your transportation, accessorial fees and surcharges. In addition to current rate analysis and modeling, we can identify potential cost mitigation options. For Private Equity owned companies, we also offer additional options to manage parcel costs via our leveraged volume rates. Click HERE for additional information on the program.
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