The average rate increase for primary services provided by UPS and FedEx mirrors that same familiar 4.9 percent increase that we have seen for many years.
And just as we have seen for many years, the 2021 parcel rates increase announcements are just a visible layer in the carriers’ rate and service pricing structures. With multiple layers, the complex pricing and surcharge practices of UPS and FedEx can make it difficult to determine the true cost for your small package shipments.
Beyond the average increase on standard services, it is also important to recognize that surcharges, accessorials, new fees and tweaks to the carriers’ terms and conditions could require you to budget a 2021 cost increase closer to 8.5 percent. Capacity pressures created by exponential e-commerce growth during the pandemic and uncertainty about mid-year or peak surcharges for 2021 creates an environment of unknowns.
You need to understand how your shipment characteristics align with carrier networks. If you are a large shipper with a great contract, be prepared to defend that as tight capacity drives renegotiation motives for UPS and FedEx. Your parcel partner can be a real asset during this time if they have the ability to analyze your historic performance and determine areas for future cost savings that do not jeopardize performance.
Let’s explore three aspects of this year’s parcel rate increase that could drive new costs in your transportation budget.
- Expanded ZIP Codes for Delivery Area Surcharge
More ZIP codes than ever before will be eligible for Delivery Area Surcharges (DAS) for both UPS and FedEx. Both carriers adjust the applicable ZIP codes every year, but the past two years have reflected significant changes. In 2021, these charges will apply to almost 38 percent of the United States.
The increase for UPS DAS areas will apply to almost 12.3 million people, while the FedEx changes will affect about 11 million people. Ultimately, that means you are facing an additional surcharge for more of your customers.
This is a difficult adjustment to calculate on your own, but when that much of your customer-base is affected by new costs, deep analysis is required to determine how these changes will impact your budget in 2021.
We talked more about the changes around DAS during our recent parcel rates webinar. Watch the replay for more insight on the how and the why behind this move by the carriers.
- Additional Handling Charges for Large Parcels and More to Come
If your packages measure over 105 inches in length and girth combined, you will be charged an Additional Handling Fee of $16. This dimension change on the fee targets packages that barely miss the Oversize criteria of 130 inches (L and W combined). It applies to packages that take up a lot of space on conveyor belts, but do not get charged high dimensional weight.
Parcel carriers are becoming increasingly selective about the packages that move through their automated networks. Large packages, in certain instances, can cause significant problems in an automated facility. Moving them often requires more work from human resources, a costly and time-consuming element.
Beyond this $16 charge, UPS is also implementing a new structure for additional handling and large package rates that will differ by zone. Those rates will be announced at a later date, April 11, 2021 for non-hundred-weight packages and July 11, 2021 for hundredweight packages.
For heavy retail customers that are not clothing-oriented, this change could create a significant impact. We work with clients to identify specific impacts and solutions to mitigate the added cost.
- Lightweight Parcels Face Steepest Rate Increases
It is important to understand that when the carriers have a rate increase, it is not a universal rate increase across all weights and zones. The average rate increase is 4.9 percent. The level of rate increase for your volume depends on your shipping characteristics. For many shippers a larger percentage of their packages qualify for minimum charges, especially larger shippers with more aggressive pricing.
This year, parcel shippers charged at the zone 2, 1-pound minimum will face a steeper increase – about 6.4 percent – than their counterparts in other weight and zone combinations. Likewise, UPS and FedEx rates match between 1 and 15 pounds, and for these lightweight shipments the increases are generally higher than those for heavier packages.
This strategy of larger increases on lightweight packages is an abrupt change for UPS and FedEx. Two factors likely affect the decision:
- Competition from Priority Mail: Last year (before COVID-19), FedEx and UPS were both concerned with competition from Priority Mail. Lightweight Priority Mail rates are significantly lower than UPS and FedEx Ground rates, especially to residential addresses. Heading into 2021 with the parcel industry at capacity, there is less concern on competitiveness and more emphasis on profitability.’
- Profitability: Lightweight packages are typically less profitable for small package carriers than heavier weight packages. Carriers are likely to continue to increase lightweight packages at higher levels as long as there are capacity constraints. Regional carriers can offer an efficient alternative in some of your lightweight shipping scenarios. In light of capacity challenges and other disruptions during 2020, many of these operations have filled a niche and grown. These carriers can sometimes be easier to implement, and they don’t often bring the surcharges the national carriers apply.
During our Parcel Rates Roundtable we share tips for leveraging regional carriers as part of your parcel program. Watch the webinar to make sure that type of move does not drive up cost with your national carrier due to your tier commitments.
Parcel Bills: Do Not Pay Late
Another area for attention: when its GRI takes effect Jan. 4, 2021, FedEx will begin applying a 6 percent late payment fee. UPS implemented this fee in 2004, and this gives FedEx customers cause to pay close attention to the payment terms in their contracts.
Not paying your bills on time now becomes a more financially impactful decision, and these fees can add because they apply at the invoice level.
Master Your Parcel Plan, Minimize Rate Impact.
Do you have your finger on the pulse of your parcel program so you can understand the true cost impact of the 2021 annual General Rate Increase across your end-to-end supply chain?
Questions to consider:
- How do your contract terms and conditions address volume caps?
- How will volume caps affect your actual rate increase, surcharges and other fees?
- How does your customer base change now that more than 11 million people have been added to the DAS delivery charge?
- How do you budget for these changes?
Open our Parcel Rate Outlook 2021 for our expert support in preparing a plan that carefully considers these questions – and all changes across the parcel environment. Leveraging deep parcel expertise, tools and technology, we’re able to provide rate impact analysis specific to your personal needs and design a business solution that controls cost and protects experience.
Get our Parcel Rate Outlook 2021 today and make sure your 2021 transportation budget considers the nuances lurking in the layers below the 4.9 percent average rate increase.