2013 rate increase article final 1 10 2013
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  • 1. UPS/FedEx and “The Fiscal Cliff” By Ken Wood, President of LJM Consultants - Freight Auditing & ConsultingThe good news is our country has averted going over the fiscal cliff; the bad news is yourUPS/FedEx rates and surcharges have once again increased significantly. Like clockwork, bothmajor parcel carriers, UPS and FedEx, have implemented their yearly rate increase, and onceagain they are masking the true impact of the increase by stating the following: “Air andInternational Services will increase an average net 4.5% through a combination of a 6.5%increase in rates and a two percentage point reduction in the Air and International fuelsurcharge. Ground Services will increase an average net 4.9% through a combination of a 5.9%increase in rates and a one percentage point reduction in the Ground fuel surcharge”. Doesanybody actually know what this even means? Thankfully, we do!!!The operative word in the carrier rate increase announcement is average. It is important torealize that the announced rate increase is based on just that, an “overall average”, calculatedby rating individual shipments weighing 1lb through 150 lbs to every cell in every zone. There isnot a shipper in the United States who fits that shipping profile of being average. When youtake a closer look at the carrier’s rate tables, you get a more realistic and accurate view of theactual increase and how the increase affects your particular business based on your company’sunique shipping profile. If you are the typical small parcel shipper, the majority of yourLJM Freight Auditing & Consulting www.myLJM.com (631) 844-9500 1
  • 2. packages weigh less than 30 lbs. Guess where the highest carrier rate increases are? Youguessed it. The increases on lighter weight shipments are considerably higher than theincreases on heavier weight (less common) shipments. For example, a 3 lb ground packagegoing to zone 3 increased by 8.94% while a 74 lb package going to zone 3 increased by 1.69%.Shipments weighing between 1lb and 10 lbs increased on average 8% while shipments weighingbetween 71 lbs and 150 lbs increased on average 4.7%. This is why the carriers can continue toquote an average increase of 4.9%. Your actual increase will be closer to 7.5% and that doesn’tinclude the ever increasing “Surcharges and Accessorial Fees”.The following chart illustrates examples of the average percentage increases for GroundPackages by weight breaks as well as the increases for Air Services. To see a wider sampling ofthe increases by weight and zone (please click here) Ground Service Air Services Average Rate Increase Average Rate Increase 1-5 lbs. 8.2% Next Day Air Early A.M. 5.8% 6-10 lbs. 7.8% Next Day Air 7.2% 11-20 lbs. 6.7% Next Day Air Saver 7.7% 21-30 lbs. 6.1% 2nd Day Air A.M. 8.2% nd 31-70 lbs. 5.6% 2 Day Air 8.0% 71-150 lbs. 4.7% 3 Day Select 8.5%What about the 2013 “Accessorial Fees” and Surcharges?Unfortunately, the 2013 base rate increase is only part of the bad news. Package surchargesand accessorial fees can add as much as 30% or more to the cost of shipping a package. Theseadditional fees, such as address corrections, residential surcharges, dimensional weight chargesand delivery area surcharges (to name a few) account for a large portion of both UPS’s andFedEx’s profits. Year after year, these surcharges and fees have been increasing at a higherpercentage than the base rates and this year is no different. For example, the 2013 surchargefor an “Address Correction” increased to $12, up 9.1%; the “Residential” surcharge for groundshipments increased to $2.80, up 9.8% and the Declared Value (insurance) surcharge is now$.85 per $100 with a minimum charge of $2.55, up 6.25%. These surcharges coupled with thebase rate increase could escalate your actual shipping costs by more than 10% over last year.LJM Freight Auditing & Consulting www.myLJM.com (631) 844-9500 2
  • 3. The following is a listing of the 2013 Accessorial Fees and Surcharge increases: They can take a large bite out of your profitability if not properly managed. Accessorial Fees*Address Correction Fee: Increased $1.00 from $11.00 to $12.00 (9.1%)Residential Air Surcharge: Increased $.20 from $3.00 to $3.20 (6.7%)Residential Ground Surcharge: Increased $.25 from $2.55 to $2.80 (9.8%)Residential 100 Weight Surcharge: Increased $1.70 from $26.00 to $27.70 (6.5%)Delivery Area Surcharge Air Residential: Increased $.25 from$3.00 to $3.25 (8.3%)Delivery Area Surcharge Commercial: Increased $.15 from $2.00 to $2.15 (7.5%)Delivery Area Surcharge “Extended “Residential: Increased $.25 from $3.25 to $3.50 (7.7%)Delivery Area Surcharge “Extended” Commercial: Increased $.15 from$2.00 to $2.15 (7.5%)Delivery Area Surcharge 100 Weight: Increased $.75 from $10.00 to $10.75 (7.5%)Declared Value (insurance) Minimum: Increased $.15 from $2.40 to $2.55 (6.3%)Declared value (insurance) per $100: Increased $.05 from $.80 to $.85 (6.3%)Delivery Confirmation Signature Required: Increased $.25 from $3.50 to $3.75 (7.1%)Delivery Confirmation Adult Signature Required: Increased $.25 from $4.50 to $4.75 (5.6%)Delivery Intercept surcharge: Increased $2.00 from $15 to $17 for requests made by telephone (13.3%) and $1.00 from $11.00 to $12.00 for requests made via UPS.com (9.1%)Indirect Signature Required (FedEx) Increased $.25 from $2.00 to $2.25 (12.5%) *The listed Accessorial Fees are for UPS. FedEx Accessorial Fees vary slightly. For detailed FedEx surcharges and fees, visit http://www.fedex.com/us/2013rates/surcharges-and-fees.html LJM Freight Auditing & Consulting www.myLJM.com (631) 844-9500 3
  • 4. Understanding how your business will be affected by these rate increases is crucial to yourcompany’s bottom line. Two things that your organization can do immediately to help offsetthese increases are to:  audit your weekly carrier invoices with a professional third party auditing firm  get professional assistance and look to renegotiate your UPS/FedEx agreement immediatelyIf you would like to learn more about how these increases will affect your business please callme at 631-844-9500 or email me at kenwood@myLJM.com. LJM will provide a “free” consultativeanalysis and show you ways to mitigate these increases.Additional helpful links:http://www.myLJM.com – LJM Websitehttp://www.myLJM.com/blog/ - LJM Bloghttp://www.rates.ups.com/index.html - 2013 UPS Rate Change Informationhttp://www.fedex.com/us/2013rates/rate-changes.html- 2013 FedEx Rate Change Information  Increases mentioned are for UPS. FedEx increases are similarLJM Freight Auditing & Consulting www.myLJM.com (631) 844-9500 4