So, as the summer starts to wind down, the vacation season is over, and the kids are back in school, it can only mean one thing. It’s time for transportation experts to start focusing on their upcoming peak shipping season and 2025 budgets. Based on what has transpired in the Parcel markets this year, planning and budgeting will be particularly challenging.
In case you missed it while enjoying the last days of summer while burning up your remaining vacation days, there were multiple rate announcements made by the larger carriers over the past few weeks. Maybe it’s just us, but this seems to be starting to become sort of the norm! We do remember a time when rate increases were more of an annual thing. Lately it feels like this is happening on a monthly basis!
We have been reporting on these changes throughout the year. So, given the multitude of the changes and increases that the main Parcel carriers have been churning out, we thought it would make sense to put together a summary. We felt that this could help the Parcel shipping community gain a greater understanding of why they might be seeing a decline in profits, or are starting to blow out their budgets. Unfortunately, many shippers aren’t aware of the major impact that these cumulative increases are having on their businesses.
Most of these rate changes and increases were very quietly announced by the major parcel carriers. So, many shippers are not even aware that they happened. Here is a list of all of the changes and increases that have occurred this year, outside of Annual General Rate Increases (GRI’S)
Fuel Surcharge Index Increases
For the past year, UPS and FedEx have both increased FSC percentages multiple times. These increases were between 0.5% and 1% each time. The most recent increases became effective on August 26th for UPS and increased FSC’s by 0.75%, and on September 2nd for FedEx with an increase of 1%.
To help understand the scope of these increases, UPS and FedEx Fuel Surcharges have increased a total of 3% since the beginning of December of 2023. Let’s break it down:
- December 4, 2023 + 0.5% (50 bps)
- December 18, 2023 + 0.75% (75 bps)
- April 29, 2024 + 0.5% (50 bps)
- July 15, 2024 + 0.5% (50) bps
- August 26th, 2024 + 0.75% (75 bps)
FedEx Fuel Surcharge Increases:
- December 11, 2023 + 1.0% (100 bps)
- May 6, 2024 – 1.0% + (100 bps)
- September 2, 2024 + 1.0% (100 bps)
It is important to point out that these increases are not to be confused with increases driven by weekly Fuel Price Fluctuations. These are purely increases in the percentages that the carriers portray in the FSC Index tables. So, increases in Fuel Prices can and have driven increases even higher!
Rate Increases and Changes to Delivery Area Surcharge, Extended and Remote Area Surcharge
Back in April we released a blog post that detailed how FedEx and UPS will have added surcharges for deliveries in 82 ZIP codes, primarily in parts of major urban areas. These increases added additional costs between $3.95 and $5.85 per package for effected zip codes. The important fact here is that these new zip codes were in highly populated areas. Therefore, shippers could expect to see an increase in the number of packages receiving these surcharges.
Changes to Zones/ZIP Code Pairs
Our blog in June on this topic discussed how UPS made changes to certain Zonal Pairs, which could significantly increase costs for shippers. We had performed an analysis of Zonal changes, and based on the Zone charts that we analyzed, we discovered that there were a total of 575 zone changes when we compared Jan. 2024 charts to Jun. 2024 charts. Of these changes, 76% or 436 changed to a higher zone. The table that we put together to demonstrate the potential impact of Zone increases showed that certain shipments could incur increases of almost 25% per package!
Fuel Surcharges Applied to New Accessorial Services
UPS issued a new list of “Value Added Services” and Other Charges with Fuel Surcharge Application that was effective on August 19th, 2024. Our review and analysis of this list uncovered that FSC would now apply to several accessorials that did not receive this charge before. These included Address Corrections, Chargeback Fee’s, and Dangerous Goods (Hazardous Materials).
To help demonstrate potential impact- If one of your express shipments receives an address correction, it will increase the cost of this by $3.41 based on this week’s Domestic Air FSC of 16.25%. A domestic Ground Hazardous Materials shipment will see an increase of $8.54 based on the current 16.75% Ground FSC. Obviously these new rules will be quite impactful for some shippers!
Peak Season Surcharges
Peak Season Surcharges from both carriers will be more impactful for many shippers compared to previous years. Our blog following UPS’s announcement on July 15th detailed that between October 27th, 2024, and January 18th, 2025, all UPS Air, Ground Residential, and SurePost shipments will incur additional charges ranging from $0.25 to $2.00 per package, depending on the service and shipment date. This differs from Peak Surcharges in previous years where peak surcharges were only more impactful for larger volume shippers.
On August 15th, 2024, FedEx released details of their Peak Season surcharges. We were not surprised to see that their surcharges would also be more impactful for shippers compared to previous years. They too instituted a surcharge for all Express/ Air, Ground Residential, and Economy Ground shipments between late October and early January that range between $.30 and $3.15 per package depending on service and shipment date.
Both carriers also announced multiple other Peak Season/ Demand surcharges that affect Additional Handling, Oversized package, Unauthorized Package, as well as larger volume shippers, (shippers with more than 20K packages per week).
We hate to be the bearer of bad news. However, we are certain that this will not be the last rate increase announcement by the major carriers this year! As we all know, Christmas is coming, and so are the Annual General Rate Increase (GRI) announcements by UPS and FedEx. Last year, FedEx announced their GRI first in early September, and it was quickly followed by the UPS announcement shortly after. The 5.9% GRI that both carriers implemented was a little lower than the 6.9% increase that the two put in place in 2023. However, given all of the extra increases and rule changes that occurred in 2024, it is probably safe to assume that average increases could have netted out even higher than 2023 levels. We have seen shippers that were impacted by over 10% due to their unique shipping characteristics.
The Key Takeaway: Stay on Top of Your Shipping Costs
We know that there is a lot of information in this article to absorb. So, if there is one key takeaway that you can glean from all of this it’s this– It is crucial that all shippers get a handle on their shipping costs. In today’s complex and ever changing shipping environment, it is imperative that shippers have solid visibility and understanding of their shipping activity and characteristics.
This is the only way to determine the impact of these rapid fire rate increases, and to help build a strategy to mitigate them, or at the very least absorb them without impacting margins and profitability. Without this, shippers are fighting an invisible profit killing enemy.
ADDITIONAL UPDATE: The U.S. Postal Service has proposed temporary price increases for certain package services during the 2024 peak holiday season. These adjustments, set to take effect on October 6, 2024, and lasting through January 19, 2025, will impact commercial and retail customers using Priority Mail Express, Priority Mail, and USPS Ground Advantage. Read our breakdown here.
ICC Logistics will continue to monitor and report any and all rate increases. Contact us to help you navigate and mitigate the impact of these changes, ensuring your shipping strategies are optimized for the peak season.
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