UPS and FedEx Increased their Rates Again. What are you going to do about it this year?

I sat down and started writing my yearly article covering the 2014 UPS/FedEx Rate and Surcharge Increase. As I began writing, I realized three things: (1) My article was sounding very much like the article I wrote a year ago for the 2013 Carrier Rate Increase, which happened to sound like the one I wrote for the 2012 increase and so on (2) I had to re-read the increases to the accessorial charges and the surcharges about a dozen times before I finally made sense of them, particularly the increases to the variety of “Delivery Area Surcharge” fees (and I do this for a living) (3) I have been auditing client invoices and negotiating carrier agreements for many years and I do not recall the carriers increasing surcharges by such an anomalous amount, example: $.07 and $.12 increase for D.A.S. Commercial and D.A.S. Extended shipments or increasing the Address Correction fee by $.35 from $12 to $12.35. Could this be an attempt to add confusion to the confusion? It brings me back to a saying I heard several years ago, “there is profit in confusion”!

Once more, the carriers both announced a 3.9% – 4.9% average increase. By now we all know that no shipper is average and the actual increase to your company’s bottom line will be closer to 7% – 8 %, with Lightweight, Residential and International packages increasing the most. The obvious reason for this yearly targeted increase is that with the boom in ecommerce, the carrier’s growth is in residential and international shipments, and the majority of these shipments are packages that weigh on average less than thirty pounds.

The main differences in this year’s increases are:

Neither carrier is offering the 1% -2% reductions in “fuel surcharges” as they have in past years
The rate increase is slightly different throughout the cells (the higher increases are again targeted towards the most utilized lighter weights) see the cell by cell increase 2014 vs 2013 rates.
The increases to the “accessorial charges” have varied
-UPS Increases: http://rates.ups.com/surcharges.html
-FedEx Increases: http://www.fedex.com/us/2014rates/surcharges-and-fees.html
UPS air rates are now very comparable to FedEx air rates, where FedEx rates historically were higher. Pay particularly close attention to the carriers three-day air rates

Note: The increase that will likely impact the majority of shippers the greatest is the increase to the minimum net charge from $5.84 to $6.24 (6.85% increase).

So, in light of being redundant, I decided to do something a little different this year. I am simply going to include a link to my 2013 article and as a business owner; I am going to share my feelings and thoughts about this year’s carrier rate increases.

I preface my thoughts by stating that I believe UPS and FedEx are very well run companies and in the spirit of “full disclosure”, I will tell you that my younger brother was a truck driver for Airborne for over 20 years and now works for DHL unloading airplanes at JFK International Airport. I have a tremendous amount of respect for all carrier drivers, sorters, and other front-line employees. Furthermore, being in the transportation business myself for the past thirty years, I, as well as most, understand the value of an excellent VENDOR/CLIENT relationship. My goal today is to share my thoughts and to keep it “REAL” while not coming off to the readers as adversarial.

My Thoughts:

Wouldn’t it be wonderful if you, as a business owner, or as an employee of a business, had only one true national competitor? Wouldn’t it also be incredible if you could increase your prices each and every year by 5% to 10%? Wouldn’t it be even more unbelievable if your only competitor increased their prices almost identically to yours year after year? And finally, wouldn’t it be absolute utopia if you could get the overwhelming majority of your client base to simply accept your yearly increases as a cost of doing business? Well, with DHL leaving the domestic market several years ago, that is exactly what UPS and FedEx have accomplished. As a matter of fact, over the past seven years or so, the UPS/FedEx yearly rate increases have gone up significantly, nearly double the increases of prior years. Could it be that the competitive landscape has changed over the last several years? (I understand there are niche market competitors, such as: regional carriers, messengers, consolidators, the U.S.P.S., etc.).

Personally, I am in the business of helping companies negotiate their carrier contracts as well as helping companies audit their carrier invoices for accuracy. I reduce the parcel spend for hundreds of my valued customers every year and I am completely amazed and taken aback by what I often initially hear from many business owners, executives and logistics personnel. Here are some common statements I hear that amaze me the most. Perhaps you may have heard them or even said them yourself:

“We have the best rates in our entire area” If I had a quarter for every time I heard that one I would be rich. How can everybody have the “best” rates? How would you ever know?

“We really know how to negotiate!” You probably are very good, but, you likely negotiate your agreement once a year or once every three years and your core business is not negotiating UPS/FedEx agreements. The carriers and the contract negotiating companies do it every day of the year and they negotiate hundreds and thousands of different agreements. There is nothing that they haven’t seen or negotiated. You are at a significant disadvantage. Many of my customers did not realize that they have the ability to negotiate their rates by giving their carrier 30 days written notice.

“We have a great relationship with our representative and he/she really takes care of us” You do indeed have a terrific relationship, which is even more of a reason why your representative should want you to have the absolute best agreement available, right?

“We don’t want to upset our carrier and negatively affect our relationship” If asking for justifiably better pricing is going to negatively affect your relationship, you may want to re-evaluate your relationship.

“Our carrier is our partner” Here is where it gets a little dicey for some: your carrier is NOT your partner (don’t hate me). I know you have a good relationship, as you should, but partners have shared risks and shared profits. You do not share in their risks or their profits nor do they share in yours. Your carrier is a trusted VENDOR. They get compensated by how much money they make from you. Their goal, like yours, is to be as profitable as possible. You become more profitable by selling more at a higher margins and reducing expenses. It’s business 101…

Understanding how your business will be affected by these rate increases and how you respond to them is crucial to your company’s bottom line. Two things that your organization can and should do immediately to help offset these annual increases are:

(1) Audit your weekly carrier invoices with a professional third party contingency based auditing firm.

(2) Get professional assistance and look to renegotiate your UPS/FedEx agreement immediately.

NOTE: LJM Consultants work strictly on a contingency. Our only fee is a percentage of what we save you. You have nothing to lose and likely a whole lot to gain…

Ken Wood is the owner of LJM Consultants. LJM Consultants assists clients with negotiating their UPS/FedEx agreements. LJM Consultants was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. Call Ken at 631-844-9500 or email him at kenwood@myLJM.com.