As sure as the retail holiday season starts to ramp up, parcel carriers roll out new shipping rates for the coming year.
United Parcel Service Inc. and FedEx Corp. each have said they will increase their ground shipping rates by 4.9%. Last year at about the same time, the carriers announced 4.9% increases for 2016. UPS is the shipping carrier for 193 retailers in the Internet Retailer 2016 Top 500 Guide, and FedEx is for 144, according to Top500Guide.com.
The U.S. Postal Service early this year increased its rates an average of 9.5% on several shipping products used by online retailers, including Flat-Rate Priority boxes. The USPS is listed as the shipping carrier for 120 retailers in the Top 500, according to Top500Guide.com.
Effective Dec. 26, UPS rates for U.S. Ground delivery, U.S. Air and International packages will increase an average of 4.9%, as will UPS Air Freight rates within and between the United States, Canada and Puerto Rico, UPS said Sept. 2. Additional rate changes and charges will be announced Nov. 18, including new retail rates and UPS SurePost rates, the carrier says. SurePost is a program in which UPS hands off parcels to the U.S. Postal Service for final delivery to consumers.
UPS also changed the size of packages for which an additional handling charge kicks in on UPS Air and International packages: 48 inches instead of 60 inches, as of Dec. 26. Other 2017 rate changes include a 35-cent increase in the additional handling fee, which currently is $11, according to UPS. SurePost packages will be subject to this surcharge starting Jan. 8, UPS says.
FedEx’s rate hike takes effect Jan. 2, with FedEx Ground and Freight increasing an average of 4.9% and Express rates increasing an average of 3.9%, the carrier said earlier this month. FedEx also on Jan. 2 will change the dimensional weight divisor for FedEx Express and FedEx Ground packages to 139 from 166, making the divisor the same as it currently is for international packages. Carriers charge by gross weight or dimensional weight, which is calculated by the length, height and depth of the box divided by the divisor, which for FedEx (and UPS) has been 166 since January 2011. The UPS divisor remains 166.
Using 139 instead of 166 as the divisor for dimensional weight calculations amounts to about a 20% increase in billable weight for online retailers that don’t have a “custom DIM factor” in their contracts, says Brian Broadhurst, vice president of transportation solutions with transportation spend management consultancy Spend Management Experts. “That’s a big differentiator between UPS and FedEx. And this adds another layer of complexity [to determine shipping costs],” he says.
It’s necessary for the UPS-FedEx “duopoly” to charge more for packages because of the significant investments the carriers must make in order for their networks to handle the significant increase in e-commerce volume, says Marc Wulfraat, founder and president of supply chain consulting firm MWPVL International. “Billions are being invested by the carriers to keep up with the demands of the e-commerce package volumes,” he says.
Retailers that ship lightweight, bulky products are subject to the highest shipping cost increases because such packages “consume more space on the trucks and planes and should be charged accordingly,” Wulfraat says. FedEx’s new divisor could compel retailers that have not made packaging changes to do so, Wulfraat says. For example, an apparel retailer that ships merchandise in boxes might switch to polybags.
Broadhurst says retailers that ship a lot of pillows, bedding or plush toys, for example, will feel the impact of FedEx’s 139 vs. 166 dimensional weight divisor. Finding more efficient ways to package and ship such goods is key for a retailer, as is negotiating a shipping contract that mitigates the impact of that and other increases, he says. “There’s a lot of air being shipped, and it’s taking up space in a truck.”
Parcels that take up more space already cost more to ship. On June 1, FedEx made more packages subject to a $10.50 handling surcharge—the fee kicks in on items longer than 48 inches; the previous size threshold was 60 inches.
FedEx also is changing the way it calculates fuel surcharges. “Beginning in February, we will also be updating the FedEx Express and Ground fuel surcharges weekly as we do with FedEx Freight today. There will be no changes to the fuel surcharge tables,” T. Michael Glenn, president and CEO of FedEx Services, said Sept. 20 during FedEx’s earnings call. Details of changes to rates and surcharges are available at fedex.com/rates2017. Currently, the fuel surcharge is based on a fuel price from two months prior to the month in which it is assessed. Effective Feb. 6, the surcharge will be based on a weekly fuel price from two weeks prior to the week in which it is assessed, FedEx says.
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