2019 Small Package Rates Climb Higher as Shippers Grapple with Tight Margins and Increasing CompetitionSmall package rates continue to climb as shippers face tight margins and increasing competition. Meanwhile, volumes climb at FedEx and UPS resulting in investments in automation, new and expanded facilities and network optimization. As the two largest U.S. small package carriers achieve greater efficiencies through their investments, their cost savings are not being passed to their customers. In some cases, shorter delivery times are now offered but it is coming at a greater expense for shippers.

2019 Carrier Rate Increase Guide

Perhaps UPS was correct when they noted in their rate increase press release, rate increases support ongoing expansion and capabilities enhancements while ensuring UPS is fairly compensated for the value and high service levels provided.

We would like to think the best return is achieving more customers by excellent customer service and care versus simply increasing rates. However, there comes a point in which competition will enter the market if it sees the opportunity to offer a comparable service at a better rate. We appear to be on the cusp of that phenomenon – Amazon Logistics is expanding not only its Ground network but also its Air network. While not an immediate threat from a financial or volume perspective, it will eventually be a force to reckon with and shippers will experience the stabilization of domestic rates driven by fair market competition.

Until then, FedEx and UPS have announced their 2019 rate increases and once again, both announced an annual average increase of 4.9%. But, if one peels back the layers and studies the numerous fees, one will soon realize that the shipping rate increases for the typical shipper will likely be significantly higher.

Year-over-year growth rates may seem minimal for some fees but when one looks at the historical growth rate, it is definitely an eye-opener and proof that shippers need to monitor their invoices closely. As a neutral, third party, Spend Management Experts can offer insight into rates as well as solutions and how best to optimize networks. Please visit our website to learn more.

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FedExEffective Date:

January 7, 2019Avg. Annual Increase:

4.9%

UPSEffective Date:

December 26, 2018

Avg. Annual Increase:

4.9%

Average Annual Rate IncreaseThe annual average annual rate increase has remained at 4.9% since 2013 with both carriers announcing 5.9% average annual rate increases in 2011 and 2012 and 4.9% increases in 2010. As usual the math is mysterious, confusing and very hard to evaluate. The increases vary by zone and weight across all service levels.

Often described as “The Duopoly”, FedEx and UPS have sparked many questions as to why they announce the same average rate each year and it also raises suspicions. While no official explanation has been offered, we do not believe it's a coincidence.

In the U.S. there remains little competition for last mile delivery. Combined, FedEx and UPS have over 80% of the small package last mile delivery. Regional small package providers are enjoying increased volumes but in limited parts of the country while the USPS, despite gains in package volumes, continues to suffer financial constraints. Crowd-sourced startups have limited appeal and face labor and pay concerns. Amazon Logistics could be a viable option particularly as it builds out its own ground and air networks.

2019 Carrier Rate Increase Guide

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2019

4.9%2018

4.9%2017

4.9%2016

4.9%2015

4.9%2014

4.9%2013

5.9%2012

5.9%2011

5.9%2010

4.9%

FedEx2019

4.9%2018

4.9%2017

4.9%2016

4.9%2015

4.9%2014

4.9%2013

5.9%2012

5.9%2011

5.9%2010

4.9%

UPS

What it means to shippersAs long as there is little competition, U.S. domestic ground rates will remain high. A viable third player such as Amazon Logistics could eventually shift the competitive focus to rates but until then, shippers will need to proactively manage shipping costs and think creatively in regards to service levels and transportation mode when optimizing the last mile.

2019 Carrier Rate Increase Guide

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Residential SurchargesThe rise of e-commerce has resulted in an increase in residential deliveries, often the least profitable delivery location versus that of business locations. The fee is usually applied to locations where a business is operated from a home, or to any shipment for which the shipper has designated the delivery address as a residence.

For 2019, FedEx’s year-over-year increase in the Ground and Air Residential Surcharge is 6.0% to $4.40 and 5.6% to $3.80 for Home Delivery. The UPS Ground Residential Surcharge is increasing 9.7% to $3.95 and the Air Residential Surcharge is increasing 9.6% to $4.55.

Delivery Area Surcharges (DAS) for Residential are also on the rise with FedEx Home Delivery DAS increasing 5.8% year-over-year to $3.65 and the same fee for UPS will increase 8.57% to $3.80. The Ground Residential Extended Delivery Area Surcharge are also increasing with UPS growing 9.0% to $4.85 and FedEx increasing 5.7% to $4.65 for Home Delivery.

What it means to shippersResidential deliveries are expensive for the two carriers. Business and alternative delivery pickup points are often more lucrative for FedEx and UPS and as such, by increasing residential delivery fees, shippers may encourage customers to pick up in stores or other alternative pick-up locations. In addition, ‘free shipping’ may be threatened and for some shippers, there may need to be a modification of/or rethink in offering ‘free shipping’.

*This chart represents yearly ground residential surcharges

What it means to shippersFedEx and UPS do not want large items in their small package network and are trying to punish shippers that insist in putting such items into their networks. The network, as well as facilities, that handle small packages are not set up to handle large items. Instead, there are other options. For example, each carrier offers less-than-truckload (LTL) services as do a number of trucking firms. Compare the prices and avoid the small parcel networks for large items.

2019 Carrier Rate Increase Guide

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FedEx**UPS*

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Oversize/Large Package SurchargeMore large items such as sports equipment, furniture and patio furniture are being ordered online, however, these items have presented a challenge to FedEx and UPS small package networks. Many of these items do not fit on the conveyor belts within small package facilities and often require additional handling. As a result, both carriers have implemented surcharges to discourage these types of items from entering the small package network and instead to the LTL network.

In 2018 alone, UPS has increased surcharges six different times. In addition, as part of its holiday peak season surcharges, additional surcharges were temporarily added to large items. For 2019, the Large Package Surcharge for U.S. Domestic commercial packages will increase by $15.00 while the Large Package Surcharge for U.S. Domestic residential packages will increase $25.00. Meanwhile, Overmax and Oversize fees will increase significantly. The Over Maximum Limits charge will increase $200.00 and the Oversize Pallet Handling Surcharge will increase $200.00.

FedEx has also raised Oversize charges in an attempt to better manage its network. The 2019 rate is increasing 12.5% to $90.00 and since 2016, Oversize charges have increased 33.33%.

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$55.00

Additional Handling, Address CorrectionThe handling of large items as well as packages not shipped in corrugated cardboard resulted in the Additional Handling charge. This somewhat fuzzy fee is assessed based on packaging, weight, length and width. According to UPS, the additional handling fee is assessed on any package that “requires special handling, as determined by UPS in its sole discretion.” UPS’ fee will increase $2.25 for packages less than 70 pounds, and $4.00 for packages over 70 pounds. Likewise, FedEx will also increase their additional handling fees to $13.50 for 2019. This is a 12.5% year-over-year increase and 28.6% increase since 2016.

One of the most overpriced surcharges is the address correction fee. FedEx’s Address Correction charge will increase by 6.67% from 2018. This charge has increased over 23.0% since 2016. Thanks to automation, verifying and correcting addresses is much less time consuming task for small parcel providers. However, instead of aligning costs of the charge to costs incurred with this charge, it is now a substantial profit center. For UPS, it will increase $0.50 and the per shipment maximum will increase $3.50. Lesson to shippers, make sure to properly address each package – the UPS way. This fee alone, for Ground deliveries, has increased 64% since 2010 from $10.00 to $16.40.

2019 Carrier Rate Increase Guide

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What it means to shippersPay close attention to your invoice and question the details. Charges such as additional handling and address correction have a way of creeping into invoices without any explanation – Sometimes there are good reasons for each and sometimes there are not.

FedEx Address Correction

23.08%*UPS Address Correction

26.15%*

Additional Handling 28.57%*

Additional Handling 35.71%*

*Percentages represent increase from 2016–2019

How Spend Management Experts (SME) Helps Shippers• Optimizing supply chain networks

• Providing deep industry-leading analysis into shipping costs

• Identifying savings with the use of proprietary technology models

To learn more, please visit www.spendmgmt.com, call 404.902.5390 or email kmcquilken@spendmgmt.com