2023 has had its share of challenges: an uncertain economy, high fuel costs, and inflation will all contribute to this year’s general rate increase (GRI).
But the biggest impact will likely be the rising cost of labor. FedEx and UPS have faced labor disputes with their unions, which have demanded higher pay for workers. Both carriers will be looking to pass these higher labor costs on to shippers.
At the same time, shipping volume has been dropping, and the market is shifting from a carriers’ market to a shippers’ market. This means that while parcel carriers will attempt to push more of their rising labor and operation costs onto customers, they must also tread carefully to ensure parcel volumes don’t continue to drop.
What does this all mean for your business in 2024? And what can you do to protect your bottom line with another jump in shipping rates just around the corner?
Keep reading to uncover what we predict will happen with this year’s GRI and what actions you need to take now to reduce the impact.
1. GRI Will Meet or Exceed Last Year
For eight straight years, from 2014 – 2021, the standard GRI rate increase was a predictable 4.9%. However, as the pandemic strained carrier capacity, the rate jumped to 5.9% in 2022 and took another large leap to 6.9% in 2023 – upending almost a decade of predictable rates.
Predicting where the GRI rate will land is always tricky, and several factors could influence the final rate. As noted, shipping volumes are down, and carriers have more capacity than in the last few years. This puts pressure on them to keep rates at a price point that doesn’t further reduce volumes.
However, labor disputes for both FedEx and UPS have been challenging this year, and labor costs are increasing. UPS’ recent agreement with the Teamsters is estimated to cost UPS about $30 billion in additional spending during the life of the five-year contract. Meanwhile, FedEx pilots recently rejected a tentative agreement to amend their contract, which would have increased pay by up to 30%, signifying that FedEx may have to offer even higher rates to reach an agreement. FedEx and UPS will be looking to shippers to absorb those costs.
There is also concern about lower volumes due to uncertainty about the economy. This is likely top of mind for both carriers, and they will be looking to balance the impact of an economic slowdown on their bottom line without impeding their ability to gain business.
While new carriers are starting to enter the market, such as with the LaserShip/OnTrac (now OnTrac) merger, none of these carriers are in a position to compete coast-to-coast with FedEx and UPS. In addition, OnTrac issued a 6.9% GRI last year, making it unclear whether they intend to offer a value proposition to FedEx and UPS or simply expand the duopoly into a triopoly.
USPS has recently announced its Ground Advantage service, and it could become competitive for cost-conscious shippers who don’t care about transit times. But, for shippers that need fast, 2-day or less transit times, they must still look to FedEx and UPS.
Perhaps down the line a few years we’ll see more carrier disruption put downward pressure on GRI increases, but we don’t anticipate that happening this year. Even though volumes are slowing, carriers still have wiggle room to raise rates.
Prediction: Carriers will raise the base GRI by 6.9% again this year, but the rate could climb higher due to labor disputes
10 Year Historical FedEx and UPS Rate Increases
2. Rate Hikes on Accessorial Fees Key Focus for Carriers
The impact of the GRI is more complex than the base rate increase indicates. In addition to ground or air rates increasing, carriers will be raising accessorial and additional handling fees – likely much higher than the base GRI rate. Last year, some accessorial fee increases were as high as 20%. While we don’t anticipate quite as large of increases this year, we still think they will be significant.
Both UPS and FedEx are hyper-focused on improving efficiency and their bottom line. Significant accessorial rate hikes will continue to make it clear to customers that they only want to ship the most profitable packages – those that are small, lightweight, and delivered to populated urban areas.
If your shipments include “ugly freight,” such as large, bulky, or odd-shaped freight that makes it difficult to pack trucks efficiently and requires additional handling, you’re going to see a painful hike in your rates. Expect rate hikes on packages and delivery services that require signatures, are delivered on weekends, or in any way require additional handling.
Carriers are also adding fuel surcharges and fees for residential or remote delivery into the mix. For example, FedEx’s 2023 DAS Remote Charge added extra delivery costs to remote areas, and we predict similar surcharges for remote zip codes as well as more zip codes added to the list from both carriers this year.
Prediction: 10%+ rate hikes on accessorial fees and additional handling charges
For reference, increase of additional handling and large package/oversize surcharges in 2023:
|Surcharge||2022 Rate*||2023 Rate*||% Increase|
|Additional Handling (Weight)||$27.75||$31.67||14.13%|
|Additional Handling (Length & Width)||$17.92||$20.83||16.24%|
|Additional Handling (Packaging)||$15.83||$18.67||17.94%|
|Large Package (Commercial)||$123.33||$148.33||20.27%|
|Large Package (Residential)||$148.33||$178.33||20.23%|
|Additional Handling (Weight)||$28.44||$32.50||14.28%|
|Additional Handling (Dimensions)||$18.56||$21.63||16.54%|
|Additional Handling (Packaging)||$16.25||$19.13||17.72%|
|Oversize (Home Delivery)||$152.50||$180||18.03%|
3. Peak Season Rates Will Be in Effect Longer
The Peak Season Surcharge is a temporary increase applied to base shipping rates that are put into place during the holiday season versus the GRI, which is a permanent rate increase. Since COVID-19, the line between the GRI and Peak Season Surcharges has blurred as businesses have been hit with Peak Season Surcharges, now being referred to as “Demand Surcharges,” outside the normal holiday peak season.
In addition, retailers are blurring the lines of what constitutes the holiday shopping season. Rather than Black Friday starting the day after Thanksgiving, the entire month of November is becoming the “black month,” as many retailers offer promotions earlier and earlier. Last year, FedEx ran its Peak Season Surcharge from October 2, 2022 – January 15, 2023, while UPS Peak Season Surcharge was in effect from October 30, 2022 – January 15, 2023. This year, FedEx may start even earlier, and UPS may follow suit.
Prediction: The Peak Season Surcharge could start as early as September and extend through February
Prepare Now to Avoid the Worst Impacts
Rate increases are coming, and they will threaten your bottom line, but there is a lot you can do to limit or eliminate the impact. Here are our top recommendations:
1. Renegotiate Your Contract
Whether you’ve renegotiated your contract in the last year, or it’s been several years, the market has flipped from being a carrier market to a shippers’ market, but it will flip back. Now is the time to take advantage of the leverage you have. Carriers are being more generous with discounts as they currently have extra capacity and want more volume from shippers.
Negotiate Your Carrier Contract Like a Pro
2. Assess Your Shipping Operations
Optimizing your packages is vital to keeping shipping costs as low as possible. Model how repackaging, resizing, or splitting purchases into smaller, multiple shipments can impact your costs and optimize to reduce costs. In addition, model your warehouse footprint to understand if your distribution network is fully optimized to help lower costs, especially during peak season.
3. Be Open to Alternative Shipping and Delivery Options
Look into different delivery methods or shipping options, such as minimizing weekend deliveries and eliminating the need for signatures. For example, if you ship products that require a signature, consider having those shipped to an alternate delivery location, such as a UPS store or a Walgreens. While these alternatives may not work for every business, they are worth considering.
Delve into Your Data
Your historical shipping data is the best way to understand what you’re currently paying for different delivery services and package types. Use these insights to model what you might end up paying under this year’s GRI.
Having data is also essential to any renegotiation strategy. You can bet your carrier will know their data – and you need equal insight into what fees and surcharges cost you the most, and where discounts can have the biggest impact on your bottom line.
You could be better off renegotiating your contract before the GRI is announced or shortly afterward. Either way, time is of the essence, so make sure you have a fast and easy way to access, analyze, and surface insights from your data. A software like Sifted makes it simple and fast to get a detailed analysis of your shipping operations, identify what will have the most significant impact on your shipping costs, and implement strategies that will reduce the impact.
Predict and prepare for this year’s GRI with a free analysis of your shipping data from Sifted. Schedule a free analysis.