Navigating the 2024 General Rate Increase (ft. Kevin Miller)

2024 is just around the corner… and so are rate increases!

Both FedEx and UPS have announced a 5.9% GRI for 2024. But as shippers know, the “G” stands for “general,” and that 5.9% is just an average across base rates.

In reality, each individual shipper will be impacted differently, and for most, rates will go up a lot more than 5.9%

Kevin Miller, Sifted’s VP of Data Insights, joins the show to break down these increases and offer advice to understand how they might impact your business + how to mitigate that impact.

Main topics:

• How rates are increasing more than 5.9%
• Increases to specific services to watch out for
• What does FedEx’s GRI tell us about what kinds of packages they desire?
• Predictions for UPS’ specific rate increases, which are yet to be announced
• Advice for shippers heading into 2024

Additional resources:

• Sifted’s 2024 GRI Analysis eBook
• FedEx Shipping Rate Changes
• How the UPS Teamsters Agreement Will Impact Shippers
• Kevin on LinkedIn
• Caleb on LinkedIn

SPEAKERS
Caleb N, Kevin M

Caleb N 00:10
Welcome back to another episode of LeaderShipping. This is what we call a bonus episode. We’re gonna occasionally mix these in. They’ll be shorter episodes with colleagues of mine here at Sifted, typically when there is a big kind of news in the industry, whether it’s in parcel or with Amazon, we’re going to hold these. This episode is really going to be focused on the GRIs which have been announced from each carrier. And joining me on today’s episode is Sifted’s VP of Data Insights. Kevin Miller, Kevin, how you doing?

Kevin M 00:46
Doing great. How are you doing, Caleb?

Caleb N 00:48
I’m doing awesome. And I am we’ve got a lot to talk about. FedEx and UPS have kind of given their blueprints for the GRI as well as some peak season or demand charges is what they’re calling it. But before we dive into it, I think it’s really important that listeners get a good understanding of who you are. And I’ll give a brief introduction, but I would love for you to fill in any gaps that might not be there. In short, Sifted is very lucky to have, Kevin, I don’t think you’ll say that you’re too humble of a guy, but Sifted really is lucky to have you, Kevin. I think as your role of Vice President of Data Insights, with Sifted being a data company, I think it’s one of the most important roles that we have at Sifted and you fill it extremely well. Kevin, you started helping shippers, win competitive advantages through kind of going through that data, and helping shippers identify what’s found in their parcel invoice data, and how they can, you know, weaponize that going into RFPs with FedEx and UPS or, you know, correct some self-inflicted pain that they might be making, in their own organization, probably through operational changes. But before Sifted, you were pretty pivotal at creating an audit program with JC Penney, is that right?

Kevin M 02:15
Yeah, that’s right. So I used to work in the accounting office actually developed a program to monitor and basically, you know, weaponize their data that they were getting from store managers and things using credit cards, that there was just no control over. So we developed a really good system in place to just create some accountability and provide that visibility back to leadership.

Caleb N 02:39
That sounds oddly similar to what we do at Sifted and providing accountability for the carriers for shippers to kind of hold their relationships with FedEx, and UPS kind of accountable. And then you were at GameStop, in kind of multiple divisions for that. What did you do at GameStop?

Kevin M 03:01
Yeah, so I was the Director of Accounting Operations for one of their tech divisions there, where we really needed to automate a lot of processes within operations, their accounting departments. And, you know, I was one of the leaders and the managers, basically, leading those projects and discussions to automate, create new reporting that nobody had visibility into, and help our business leaders make better informed decisions. There. So it was a great experience there, too.

Caleb N 03:33
I love it. And we talk about good experiences, we had a great experience speaking together at PARCEL Forum in Nashville, that was just a couple weeks ago. Wasn’t that awesome?

03:45
That was awesome. Yeah, it was great to see the that, you know, a lot of our shippers are their wheels are turning, you know, on a, that “the landscape is changing. What do I need to do?” This is territory for a lot of us in the parcel world where, you know, UPS and FedEx aren’t the only option. So talking about that diversity, what its challenges are, and why people should be considering it now versus, you know, more than ever before was really important and fun to discuss with people.

Caleb N 04:12
It was. I think it’s really rewarding. I mean, that PARCEL Forum is such a great conference, but it’s really rewarding to validate. Oh, yeah, sifted, we’ve been ahead of kind of where this industry is going. And we have kind of predicted out that number one data is going to be extremely important. Number two, how do you use that data to make better informed decisions? And what you and I spoke on, which was number three, and that’s carrier diversification. I think so many shippers are kind of fed up with the, you know duopoly that acts like a monopoly. Yeah. Where they know single sourcing all of their business into one carrier is probably not the best approach. Yeah. And I think a lot of that has come from, you know, pain that shippers have gone through, you know, COVID, and it being a carriers market for so long, all the way down to, you know, the UPS labor strike situation that gave shippers, a lot of heartburn. But one that I think jumps out at me that we’re going to talk about today is really, really based around that general rate increase that happens every year. It feels like the carriers have gotten more aggressive. During that, I mean, they’ve come down. I’ve heard that from shippers like, “oh, it’s not as bad as it was yesterday, last year.” Are you kidding me? Last year was the most… the highest increase we have ever seen from FedEx and from UPS. So yes, it’s not as bad as that. But 5.9% is, has been the talked-about average rate increase that shippers are going to take for this next year. My first question around that, you know, is really based on on our data, how high of an increase can some shippers expect to see? Because we know that 5.9% is really just the average.

Kevin M 06:20
Yeah, it is. And it’s an average given by the carriers across all of their different services. It’s, it’s interesting whenever they released that number, because we know very few people will get something as low as their announced general rate increase percentage that they give. And again, that percentage is only based on the rate costs. It doesn’t account for accessorial fees, it doesn’t account for really zones, or weight-based things. So in a perfect world, if you are a ground shipper shipping lightweight packages, then yeah, 5.9% would be accurate. But we know that’s not the case. For the vast majority of shippers, there’s a lot of variety, there are different zones, there are different accessorial charges that impact every single business, and it really does heavily impact them overall. And it happens every single year. That’s what I think is is the craziest part is a lot of times our budgets and a lot of us are not passing that cost on to our customers. So every year we’re eating more and more of our margin on our products with these general rate increases from the carriers.

Caleb N 07:38
Yeah, there’s two kinds of misconceptions I hear of often when I talk to shippers, and we’re talking to shippers everyday, sometimes really, very large enterprise, big-time shippers, and I’ll hear “I’m not worried about the GRI because I have a rate cap,” Rate caps are thrown around quite often, and it gives shippers a false sense of identity, like a false sense of like hope that like, “hey, my rates are gonna go up, no more than whatever that rate cap is.” And they associate you know that identity to it. They associate that that comfort level to it. Tell me a little bit about why the accessorial portion of it is so important, because I think that’s a huge area of misconception that I hear.

Kevin M 08:23
Yeah. So I mean, even with rate caps, you have to be a pretty large shipper to even be considered for a rate cap. And rate caps do not apply to accessorial fees. And we know that you know, the majority of shippers with our data, they generally have, you know, their shipping costs are about 25-30% of their overall charges are those accessorial fees. So as we go year, over year, over year, they’re getting the full increase of these accessorial fees. And it’s much bigger than their cap. And I think that’s a kind of like this hidden secret. Carriers try to bury it, you know, like, “Oh, look how amazing this is. You’re getting this cap.” But really, there’s still so many more moving parts to a general rate increase that can really come back to bite you if you’re not aware of them.

Caleb N 08:50
Yeah, I think the carriers are banking on the fact that shippers aren’t sophisticated enough to figure that out. And it is hard, like it’s a giant math problem to solve to go through it, look at your historical data – basically, your old shipments -identify which of those old shipments fall in which categories with what accessorial fees, and then apply it based upon to go forward to say “old versus new. What does it look like?” So Kevin, I know that there’s some specific increases that FedEx and UPS have announced. What are some of those increases? If I’m a shipper what can I expect to pay more for going into 2024?

Kevin M 10:00
You know, that’s a great question, because when they release that general rate increase percentage, it’s a overall percentage, right? So depending on how you ship, it will maybe impact you more or less than what you might be expecting. So, from the FedEx 2024 general rate increase that we’ve analyzed, we did find that Express shipments are actually the ones that are hit the most with the increase. So when they’re saying 5.9%, we’re actually seeing that it’s closer to like 6.7% for Express services, where two-day, I think got hit the hardest at about 7.9%, if you go higher on the zone, which many of us do. You know, if we’re a zone two or zone three shipper, it’s right around that 5.9%. But if you’re a zone 5, 6, 7, 8 shipper, it’s hitting you 7.9%. So it jumps pretty significantly, because it’s a lot more complex for the carriers to ship that package across the nation. So we’re seeing that, you know, FedEx and UPS both, they’re starting to pass the costs on to the shippers for these really difficult logistical problems that they have. So, you know, express services is one of them, but even ground services, you can you can see a vast difference in the GRI increase for specific behaviors. So if I’m looking for really lightweight packages that are not going very far, it’s 5.9%. You know, and sometimes it’s even less! Sometimes it’s 5.4%, you know. Like “yay! I have that.” But the second you pass that 30 to 40 lb mark, and you’re even in zone three or four, you’re jumping back into the 6.7, 6.8% increase-type realm, and those packages are more expensive. So the 6.7, 6.8% adds up really fast. And it’s interesting to see that they are continually hammering the higher weight packages or the weird dimensional packages. They don’t want to ship those. And so they’re starting to continually increase those prices for those shipments.

Caleb N 12:11
You know, that’s really interesting that you say that, because oftentimes we get questions from clients that say, “Hey, what are you seeing? What direction do you think FedEx is heading into or UPS is heading into?” And I think you can see a lot of what type of business FedEx in particular, based on this analysis, what type of business does FedEx want moving forward. From the overcharging you know, themes that you’re seeing, what direction are they heading into? And what type of business do they do they really want? What’s candy to them?

Kevin M 12:48
Yeah. So I mean, I can only speak based on what the data shows. And so it is a little difficult to say exactly what their plan is. But if I were to look based on their pricing over the last couple of years, they want the lighter-weight packages, they’re they’re trying to get into the eComm world where you got these smaller packages that are lighter weight. And they’re just easy to pack into a truck, there’s not a lot of variability, and you can send them out. And what’s interesting is that we’ve seen a larger increase over time be put on the express services. So even the express world where you’re getting the overnights, the two-days, those are shipments they’re starting to not want. Could be with recent discussions – I know they had some some conversations they need to have with their pilots over over different issues. And it’s just interesting that the express is getting hit pretty hard, but international is not International is pretty consistent right around the GRI percentage. So I don’t know if they’re trying to get into the international world, and not so much in the express side of things. But yeah, anything that’s heavy, going far with Express or or with Ground, they don’t want.

Caleb N 14:07
Yeah, I think the the zone-based pricing is really interesting, because it adds such a layer of complexity for somebody to try to figure that out. And then the second part is, is it’s really showing in you know, my opinion, as you mentioned that FedEx is wanting to get away from what they consider to be ugly freight. Less desirable freight, right? They want the freight that stays within a certain geographical territory for them, it is easier from point A to point B to deliver to, and it doesn’t take up a substantial amount of room and the truck or the airplane.

Kevin M 14:39
Yeah. So yeah, it’s interesting to see that even the surcharges, so not only is the freight going up by an additional percentage, the surcharges are usually around 8%, but the heavier like Additonal Handling or Oversize, they’re almost 20%. So it’s a significant jump in those fees and 20% percent every year, those fees aren’t cheap anyway. They’re really trying to dissuade people from using that.

Caleb N 15:04
You know, it’s funny, I saw a stat that went through oversize fees. In the last, not just comparing year over year, but when you look at it over the last three to four years. So “what was my pricing like three years ago? What does it look like today?” And you look at some of those oversize fees, some of those oversize fees have gone up, 200, 400%. And I know Overmax has gone up over 1500%. It’s insane. It’s crazy. Yeah, the carriers are telling a story. And they’re coming back and saying, “Hey, it’s not that we want this business, we’ll gladly take this business. We’re just going to charge you, you know, a crazy amount to take it.” I think that there’s there’s some interesting things there. And I know FedEx has announced their full GRI. UPS has kind of given a high level, they’ve announced that it’s 5.9%. So they’re gonna match FedEx. But unlike FedEx, they haven’t been really given a date for the full release. What are you expecting from them?

Kevin M 16:14
Yeah. So the first thing that I thought was interesting is that, you know, they, they kind of have to match FedEx, right? They, if they don’t, then they’re gonna lose a lot of shippers. And with the pending strikes and everything else, shippers were already kind of spooked by UPS and what could happen. So they are going to what, what I would probably estimate and expect is that they’re going to do something very similar to FedEx, like, again, they’re going to announce 5.9%, but they’ve got to recoup some of those costs somewhere, and they’re going to start doing the same thing that FedEx is doing with those heavy packages, the farther zones, I would also anticipate something to happen with the express services. But I don’t think they want as much international volume as FedEx is getting. So I would probably even estimate that international gets a heavier hit with UPS, than it does with FedEx. But I think most importantly is those those heavy weight, high dimension fees are going to get hit at least 20%, if not more with UPS too. I think they’re going to do something very similar. And they’re going to try and reintroduce other ways to make more money, whether that’s an extended demand season, maybe they even introduce another complexity outside of zone based pricing. Maybe they add weight based pricing too, but but they’ve got to find a way to make more money off of the shipments, and I fully anticipate seeing something very similar with UPS, and their general rate increase just because they kind of have to to stay competitive. I would agree with that. I think that’s why they made that announcement so early right after FedEx’s, because nobody expected them to go that low after the negotiations completed with Teamsters. And that’s probably why we won’t see the details for a little while because they have to go recalculate and figure out how to still make up some of that cost.

Caleb N 17:46
You know, and I think they have a bill that they have to pay. And that is $30 billion to end that Teamster strike, potential strike that everybody had some heartburn over this last summer. And I think they’re, they’re looking to obviously hit some of these areas hard for recuperating or recovering for that massive bill that they’ve got to pay. So it’s kind of interesting that it almost feels like UPS has kind of been caught off guard a little bit. And quickly just said, “Well, we’re just going to match 5.9% like FedEx’s,” without giving all of the full details behind the scenes, because I I honestly think it took them a little bit by surprise. Yeah. You know, there’s so many moving pieces. And I know, you know, we’re kind of just at the start of both peak season and have got basically the land for the GRI but what would be your final advice to give to shippers to prepare for these increases?

Kevin M 19:20
Yeah, so the first thing is talk with your carrier rep. You know, they are your allies in this, and I know it doesn’t feel that way, especially over the last few years, but they want to win as much as you do. And so if you can create a win-win scenario for you and the carrier, they will work with you. Tey will help you. And in order to do that you need to know what your real impact is. So you can have educated conversations with your carrier rep. You know, choosing a partner like Sifted that we can give you those details on what specifically is going to impact you as as a shipper is really, really important. You know, they announced 5.9%. The average we’ve seen is closer to 7% with the accessorials and everything, and knowing that you can go back and talk with your carrier rep and say “hey, you know, I am a really big, like, I have a lot of dangerous goods, and this is going up 20% this year, what can I do?” Like, “I can’t change my business model, but what can I work on with you guys to, to maybe reduce my cost somewhere else? Like, is there something that you guys can see on top of the data that I’m seeing?” So that’s my first piece of advice, because I know that, you know, switching carriers or carrier diversification, that’s a much longer term strategy. But my first step is, talk with your carrier rep and understand your data. And then that second step would be start seriously considering some other carriers for diversification, because we have a lot of great options coming in 2024 for people, you know, USPS has finally launched their Ground Advantage program where they will come pick up your packages for the first time, it’s very cool to see that they didn’t even introduce peak charges!

Caleb N 21:05
Yeah! Zero peak season charges, which is mind blowing, right?

Kevin M 21:11
They are hungry, they want the volumes. And with Amazon coming on board, we’ve seen very few of those agreements come through, but right now they are actually being pretty competitive with have heavier weight packaging. They’re not, like every, like, if you look at just the general rates, they look pretty similar to UPS and FedEx. But when you start to talk with their reps, they don’t mind having heavier packages, they don’t penalize you as much for having that. So they could be a great option for additional volumes. So understanding long term what your business is doing, where you’re going, and which carrier makes the most sense, I think is going to be more vital than ever for 2024. And knowing what you should do for your long term strategy.

Caleb N 22:00
I couldn’t agree more. I think my piece of advice for shippers, and again, at Sifted, we talk to shippers every single day, about navigating this world. We are experts in this. My number one advice is understand your parcel data. And, Kevin, you know, the power of that better than I think anybody else. Once you have a good lay of the land from a data perspective, you know, what’s broken, and you know what to fix. The second portion is, is when ask yourself, when was the last time you negotiated? If it wasn’t a full RFP, when was the last time you really attacked a heavy portion of your agreement through an addendum? Because if it’s been more than a year, do not get caught up in the world of, you know, “well, last year was only 6.9% on average, this year, it’s only 5.9% on average.” Yeah, but look at it from the timeframe you last negotiated until now. And what has been that increase? Because over, if it’s been two years, sometimes I talked to shippers, it’s like “we negotiated, you know, in 2017.” What? The percentage increase that just Additional Handling fee alone has taken in the last three years is substantial. And the analogy of the frog in the pot with the boiling water, right? If you drop that frog in and the water’s boiling, it’s going to jump right out. But the carriers kind of bank on the fact that they think most shippers if they just slowly start to ratchet up that pricing, the shippers become more and more accustomed to that temperature, and more and more comfortable at that level. Before they know it water’s boiling. I think my advice to shippers is don’t be the that frog in the pot.

Kevin M 24:06
And you know, even with the data, the carriers are intentionally making it more complicated by introducing new fee rules, like zone based fees, or, you know, even changing names of fees. They’re trying to make it difficult so that historically what you’ve used and everything may not map the same way, the next year. So, you know, working with somebody who lives in that day in and day out and you’re not using Excel, because Excel can handle the amount of data that you need to do to use for these different types of analyses to know what’s best for your business. So, you know, working with a partner to even know what’s happening. I think that’s a vital part that a lot of people miss. If you don’t know what’s happening, there’s no way you can move forward and fix it. So, you know, I agree with you the data is is very, very important. It’s key in understanding where you need to go in the future?

Caleb N 25:02
I love it. I always have a good time talking with you, Kevin, I think your insight and your your knowledge of both the data portion, coupled with your knowledge on the parcel side is a powerful combination. So thank you, and I hope you know our listeners have, I know that they’ve got some value from this conversation.

Kevin M 25:19
Absolutely. Thanks for having me.

Caleb N 25:21
Absolutely. You can find more LeaderShipping on Spotify, Apple Podcasts and other podcast platforms. Be sure to subscribe so you never miss a new episode. Do me a favor, leave us a rating and a review. If you’ve liked what you heard, we kind of really need feedback in order to be able to identify, you know, ways that we can improve or keep going down the path we’re going down. If you’ve got value from this episode or other episodes, let us know! We would love it. on a future episode we have coming up, we’re going to be speaking with Jessica Windham from Solving Work, where we’re going to be talking about parcel nightmares and how to avoid them. I think that’s going to be a really interesting conversation. That’s going to be where we’re diving into pain that shippers run into on a regular basis and how to avoid that. So a lot of value coming from that. You can also view episodes on Sifted’s YouTube channel, and you can learn more about Sifted at sifted.com Thanks so much for listening. Have a great day.