Tips to Help Offset the 2018 UPS/FedEx Rate Increases

The message sent by UPS is clear; if your shipments are large, UPS wants additional revenue to move the package. If your shipments are residential, UPS is encouraging you to shift to their SurePost service or charge a premium for shipping it ground. If your shipments exceed UPS’s “maximum limits” (150 lbs. actual or dimensional weight, 108 inches in length, or 165 in combined length and girth), UPS wants you to shift it to LTL. The table below is a summary of the impact shippers of heavy/large packages will incur once UPS’s new policies go into effect on July 8th, 2018; also included are the added 2018’s peak season fees:

FedEx has made similar moves on heavy packages, though not as severe as UPS; for example, the Ground Unauthorized Fee, FedEx’s version of UPS’s Over Max Limit fees, are “only” $300. While Memphis has yet to make announcements on any 2018 peak surcharges, it’s apparent UPS is confident FedEx will follow with similar surcharges. FedEx is matching many of the policy changes following UPS’s announcements, streamlining their Additional Handling criteria to 48 inches in length for all services (was previously 60 inches for Express in 2017), reducing their Oversize Fee requirements similar to UPS’s Large Package counterpart fee from lengths of 108” to 96”, and matching UPS’s policy of charging a 90-lb. minimum billing weight. FedEx is also introducing a third-party billing fee of 2.5%, which UPS has charged for several years now. With the strong and steady growth in e-commerce shipping, UPS and FedEx are positioned to be more selective about the type of shipments they want in their network and are positioning their pricing accordingly.

“These packages consume an inordinate amount of cubic space in FedEx Ground and FedEx Express equipment in the U.S. and Canada,” FedEx said in a statement in August 2017.

UPS and FedEx are continually changing their pricing and rules which makes their agreements more and more complicated and difficult to quantify, each GRI (general rate increase) announcement brings new curveballs and complexities to both their rating policies and your shipping spend. To make matters worse, the carriers’ rates no longer align with each other which makes comparison shopping even more difficult.

Below are some tips for shippers when it comes to negotiating a new and favorable Parcel Agreement.

· Most pricing and terms are negotiable, but don’t try to negotiate everything. After receiving an initial proposal, put your efforts into areas that have the greatest impact on your bottom line.

· You can re-negotiate with UPS/FedEx at any time. You do not have to wait for your agreement to end to re-negotiate.

· Avoid signing an agreement or addendum that contains an early termination or minimum commitment clause.

· Make sure you completely understand your shipping data, your shipping profile and your shipping characteristics. Your carriers know everything about your shipments, you need to as well.

· No matter what the carriers promise, never, ever waive your right to file for a Money Back Service Guarantee/Guaranteed Service refund. It will not be in your favor and you will lose your ability to reclaim thousands of dollars in refund opportunities. Late deliveries lead to unhappy and lost clients.

· Don’t put all your eggs in one basket. Split your business with the carriers 75% -25% or even 95% – 5%. Let the carrier know you always have another option waiting for the opportunity to earn your business. Negotiate your volume tiers accordingly.

· Have a solid grasp of your key shipment variables, including, but not limited to: pickup and delivery density, single piece versus multi-piece, commodity type, packaging, parcel conveyability, special handling requirements, perishability, hazardous materials, weights, services and zone distributions.

· Use the USPS, Regional Carriers and Consolidators as leverage.

· Don’t let your carrier relationship get in the way of negotiating a fair and competitive agreement. Carriers will wine and dine you with lunches, tickets to sporting events and donuts; always remember, your carrier representative is compensated by how much they grow their profits from your business. Don’t let the relationship get in the way of getting what you deserve. A great relationship doesn’t mean higher prices.

· Utilize a Third Party Carrier-Neutral Shipping System. The shipping systems your carriers give you, UPS WorldShip and FedEx ShipManager, may seem like a great deal because they’re free, but the carriers are giving them to you for a reason. When you use their systems, you are putting the carries in complete control of your shipping. If you have a carrier provided shipping system, and if your system is interfaced to your ERP system (host system) and if you are giving the majority of your business to a single carrier, you are known in the industry to be a “CAPTURED ACCOUNT”. Don’t be married to your carrier; divorce is expensive, and the carriers know it. You will be able to negotiate a much better agreement when you have shipping options. The amount of money you save by having a carrier-impartial shipping platform will be much greater than the nominal monthly cost of the system. Do not put yourself in this position; your contract will reflect it in a negative way.

· Use your LTL spend as leverage.

· Use your third-party shipments to your benefit

· Understand all your accessorial charges: Residential Adjustments, Dimensional Weight, Address Corrections, etc. and how they affect your total spend.

· Fully understand Dimensional Weight Pricing and how it can significantly increase your costs.

· Look at your minimum net charges and how they affect your effective discounts at each weight and zone.

Not all shippers are equal in the carriers’ eyes. UPS and FedEx are reacting to a parcel market tilting further towards ECommerce and Residential shipments than in years past, a trend that has been cutting into their (still considerable) profit margins. Each subsequent rate announcement made by the carriers furthers their aim to maintain past margins by upping the surcharges on their presumably least profitable freight.

In this new shipping environment, obtaining concessions from the carriers, especially on freight disagreeable to the carriers, is harder than ever, but not impossible. A shipper needs to understand all the facets of their business as reflected in the tips listed above, and even with all factors and freight being equal, the results of each negotiation may vary depending on each individual rep, local market environment, pricing office, and each carriers’ regional profitability and politics. Now more than ever, small parcel shippers should seek out the experts in the industry to walk them through an ever more complex industry.

LJM Consultants has been helping companies re-negotiate their UPS/FedEx agreements since 1998 and is one of the pioneers in this industry. LJM actively negotiates hundreds of new carrier agreements every year for clients who spend from $500K to $250 Million dollars yearly with UPS/FedEx/USPS and Regional Carriers. LJM has saved clients hundreds of millions of dollars due to their years of parcel pricing experience from both the carrier’s side as well as the shipper’s side. LJM typically saves clients five to six times more than what shippers would otherwise save on their own.

If you want to be absolutely certain that you get the best agreement available, speak with the professionals at LJM Consultants at 631-844-9500 or email us at kenwood@myLJM.com. Our services are strictly contingency based. Just like our auditing services, our only fee is a percentage of what we help you save. You have nothing to lose. Call today!