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FedEx Truck Drivers Furloughed!!??

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For years now we have heard about a truck driver shortage, so to hear from FreightWaves that FedEx Freight, the less-than-truckload arm of FedEx Corp. and the nation’s largest LTL carrier, is reporting it will furlough an undetermined number of drivers starting in early December, is a staggering commentary.

So if anyone has any doubts about an impending business slow down, AKA recession, here is all the proof you will need.   

According to FedEx, the furloughs are scheduled to last about 90 days, during which time affected workers will continue to receive health benefits and will be allowed to file for unemployment benefits in their respective states of residence. Some eligible employees will be offered permanent transfer opportunities to other markets that have hiring needs, the unit said in a statement.

The furloughs are expected to affect a small number of drivers, and not all facilities will be targeted, said Miranda Yarbro, a FedEx Freight spokesperson. The furloughs will be voluntary, Yarbro added.

“Because of our previous experience with furlough and with the incentives we are offering, we are expecting employees to volunteer to meet the business need,” Yarbro said in an email.

The unit employs about 45,000 people. It was not immediately clear how many drivers it employs.

The action was taken in response to slowing macroeconomic conditions that have impacted LTL demand in recent weeks, the unit said. The LTL segment, which has shown very strong growth coming out of the pandemic, has seen volumes level off recently due to economic uncertainty caused by high inflation and recession concerns.

FedEx Freight has been the best performer of FedEx’s (NYSE: FDX) three transport business units. Its two larger units, FedEx Express and FedEx Ground, have been hurt by high costs and slower-than-expected demand. FedEx Freight, by contrast, has focused on profitable growth and has been willing to shed unprofitable tonnage to achieve that goal.

In its fiscal 2023 first quarter, which ended Aug. 31, FedEx Freight’s operating income increased 67%. The gains were driven by actions to improve shipment yields, as well as the positive impact of higher fuel surcharges, the parent reported.

So if the freight division, FedEx’s best performing division is having financial difficulties, just think of the impact it could have on FedEx’s overall operating revenues.

Need help navigating what’s to come? Don’t hesitate to reach out to us. We’re here for you every step of the way.

Breaking: UPS Announces Rate Increases

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We’ve highlighted everything a shipper needs to know, plus your free rate comparisons

This week, as expected, UPS announced “an average” General Rate Increase (GRI) of 6.9% for 2023, which matches the average GRI increase that FedEx announced back in September.  As with previous years, UPS’s rate increase will take effect a week earlier than FedEx (December 27, 2022 vs. the FedEx increase which takes effect on January 2, 2023.) 

As always, it is imperative that shippers do not take these communicated increase levels at face value, as these are purely averages. Historically, the impact to shippers has been vastly different from the average increases that the carriers have announced. We have seen many companies use carrier announced average rate increase amounts in their budgeting and projection processes. This could be a major mistake, since it is not uncommon for the actual increase in cost for shippers to be far greater than the announced percentages.  So, failure to fully understand and analyze the impacts of these GRI’s can have a major impact on company profits and bottom lines.

Breaking it all down

By now we know that the increases that carriers put in place vary across their rate cards. Often the average increase amount is driven by higher increases in lighter weight / lower zone packages, offset by lower increases in higher weight/ higher zone packages. So, it is critical for shippers to know where their average package weights and zones fall to understand this aspect of carrier rate increases. 

Here are our key findings related to the UPS Package increases for 2023 courtesy of Laura Schwier, ICC Logistics’ President:

  • There are some very interesting increases scheduled for 2023.  For example, both FedEx and UPS increased the zone 205, 2Day air rates by 8.9%, while the rest of the zones averaged 7.5%.  
  • For UPS, the Ground minimum charge increased 7.9% compared to last year’s 6.8%. In dollars and cents, the charge went from $9.36 to $10.10.  
  • Almost all of the averages are higher than the 6.9% stated in the UPS announcement, but that’s usually what happens. 
  • As always, the 3 Day Select pricing is less expensive than the Express Saver Pricing, so these variances are of no surprise.

The UPS rate increases seem to be in line with where FedEx increased their rates as can be seen in the comparison of the FedEx and UPS 2023 vs. 2022 Rate Increase Charts which are available below to our readers by clicking the link below.

FedEx List Rates 2023 vs UPS List 2023 Chart

Surcharges and Other Rate Changes

Additionally, we have determined that it is equally important to pay close attention to carrier Accessorial Rate and Rule changes due to the impact that these can have. Back on October 6th, we published a blog that called out changes that both UPS and FedEx had made to their Delivery Area/ Extended Area surcharges. For 2022, UPS had created this new category of Delivery Area Surcharges for what they consider “Remote Areas.” FedEx jumped on the band wagon with this for 2023 as well. 

With this, both carriers have moved Zip Codes from their list of locations that received Delivery Area or Extended Delivery Area surcharges, to this new, higher priced surcharge category, (FedEx’s rate for Remote Destinations is $13.25, UPS’ 2023 rate is $13.05). This is a significant increase in costs for shipments to these zip codes, in some cases, as much as 300%!) In addition, UPS added approximately 500 new zip codes to their list of approximately 2700 Remote Area zip codes from 2022 (now a total of approximately 3200 for 2023). FedEx has almost 4000 zip codes that will receive this new Surcharge in 2023.

On top of this, for 2023, UPS has increased their rates for Delivery Area/ Extended Delivery Areas.  The published Delivery Area/ Extended Delivery Area Surcharge Rate for Ground Residential shipments will increase from $4.80/$6.50 to $5.30/ $7.15.  This equates to an increase of over 10%.  So, it is obvious where the trend is going with these surcharges. 

FedEx Fee & Surcharge Rates 2023 vs 2022 Chart

UPS Fee & Surcharge Rates 2023 vs 2022 Chart

A Note About Rate Caps

It is also important to note that shippers that have Rate Caps in place with parcel carriers, are often not protected from Accessorial rate increases or rule changes. Typically, Rate Caps are only applied to shippers’ Package Rates and Discounts. Accessorial rate increases are usually not limited by contractual Rate Caps. Also, in many cases, existing discounts do not apply to newly added surcharges. For example, a shipper with existing discounts on Delivery Area/ Extended Delivery Area Surcharges will not automatically receive these discounts for the newly added Remote Area Surcharge. So, it is important that shippers don’t assume that the terms of their current carrier agreements protect them from the ongoing barrage of Accessorial Rate increases and rule changes. 

UPS’ GRI Information Still Unclear

In their GRI announcement, UPS also states “The list of ZIP codes aligned to certain zones will change”. At this point, there are no details that allow us to gauge the full impact of this. However, ICC will continue to monitor this situation, and communicate our findings. Obviously, this could be another scenario that could have a serious impact on shipper’s costs. 

A few other items related to the UPS GRI announcement that are worth mentioning- 

  1. UPS has not yet announced Rate Changes to their SurePost product. So, please stay tuned for details of this. 
  2. They have announced a change in verbiage related to “Peak Surcharges”.  The announcement indicated that “Peak/Demand Surcharges will also be referred to as Demand Surcharges.” This is an interesting change, and suggests that UPS might be looking to create additional flexibility when/ where they can put these surcharges into effect. 
  3. It will be interesting to see how the UPS Teamsters utilize these record Rate Increases in their 2023 contract negotiations with UPS. Historically, Teamsters have seen wage increases far below the 6.9% GRI increase that was just announced. This could create some interesting leverage for the Teamsters. 

In order to determine the true impact that these announced GRI’s have on total cost, shippers need to fully understand their shipment characteristics. Shippers must be empowered with ongoing reporting and analytics that can help them make important decisions related to product pricing and overall shipping costs. Inaccurate projections related to increased shipping costs will lead to serious profit margin erosion. 

Be In the Know

Find the FedEx and UPS List Rate Comparison Charts for 2022 vs 2023 below by clicking the links provided:

FedEx List Rates 2023 vs 2022 Chart

UPS List Rates 2023 vs 2022 Chart

Remember, you are NOT alone!  Reach out to ICC to find out how we can provide you with the information and tools you need to protect yourself from unforeseen impacts on your bottom line.  We’re here for you every step of the way.  

Understanding Parcel Carrier Rate Increases

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The Devil is in The Details

Following FedEx’s recent General Rate Increase, (GRI) announcement, shippers are anxiously awaiting the anticipated GRI announcement from UPS.  As is customary, there is an expectation that the UPS GRI will be in line with FedEx’s announced 2023 GRI level, which increases rates on average (6.9%). With these annual GRI announcements it is not uncommon for shippers to focus solely on carrier package zone and rate charts to try to determine the impact of these annual increases. However, it is becoming increasingly important to pay close attention to new carrier accessorial rate changes, as these increases can also have a significant impact on parcel shipper’s bottom lines. 

What We’ve Seen in the Past

In 2022 UPS shifted approximately 2700 Zip Codes (approximately 7% of US Zip Codes) from their Extended Delivery Area Surcharge list, to a new list called “US 48 Remote Zips.” They then implemented a new Remote Area Surcharge for these zip codes in the contiguous US.  Prior to this, the Remote Area Surcharge only applied to certain Zip Codes in Alaska and Hawaii.  This increased the surcharge for these packages from the Extended Area Surcharge of $6.50 for Ground Residential shipments and $4.10 for Ground Commercial shipments, to the Remote Area Surcharge of $12.00 per package. An increase of almost 100% and 300% respectively. 

FedEx has jumped on the bandwagon with this new Surcharge for 2023. Their recent GRI announcement included a new Remote Area Surcharge in the amount of $13.25, which applies to almost 4000 Zip codes in the US, which includes almost 10% of US Zip Codes).

On top of this, it is important to point out that historically the major parcel carriers have also increased the number of Zip Codes that are subject to Area Surcharges. For example, in 2018, UPS listed approximately 23,700 zip codes that were eligible for the Delivery Area, Extended Area, and Remote Area Surcharges.  In 2022, the number of Zip Codes receiving these surcharges are approximately 25,600, an increase of over 8%. 

What’s Most Likely To Happen with UPS

Based on what we have seen in the past, along with the fact that FedEx has introduced this new fee to 48% more Zip Codes than UPS, it seems likely that UPS will increase their Remote Area Surcharge rate as well as increasing the number of impacted zip codes.  Given UPS’s new “Better Not Bigger” business strategy, it would only make sense for them to take actions to avoid customers shifting higher cost to serve packages to them without being properly compensated.

Given the complex nature of Small Package pricing, it is crucial for shippers to develop better visibility and understanding of their base rates and all surcharges they are subject to, but also to gain a better understanding of all of their parcel carrier contract terms and conditions.  In addition, it is crucial to implement processes to provide comprehensive audits of their invoices to ensure payment accuracy. 

We encourage you to reach out to ICC so we can show you how our unique industry experience, insight and technology can help uncover these types of hidden costs that can be hurting your bottom line. 

FedEx’s New Rate Increases are Here!

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Everything you need to know about the new FedEx GRIs

Well, it’s that time of year again when we start to receive notices of General Rate Increases (GRI’s), for the major freight carriers.  To start, this year’s parcel carrier GRI notices have been led by FedEx and of course as we all know, this is just the beginning of next year’s GRI notifications.   

The magnitude of the announced FedEx increases comes as no surprise to us.  With all of the recent negative operational and financial news surrounding FedEx, it is not surprising that FedEx’s “AVERAGE” General Rate Increase for this coming year is significantly higher than it has been in the past.  For 2022, FedEx jumped their annual “AVERAGE” GRI from the previous year’s 4.9% to 5.9% .  This year, FedEx is increasing their Annual “AVERAGE” GRI to 6.9% .  Historically UPS’s GRI levels have matched or been very close to those announced by FedEx. We have no reason to believe that this year will be any different.

So, we expect that UPS will announce similar GRI’s in the near future.

It’s important to remember that the term “On Average” means some increases will be less than the 6.9% in certain categories, and some will of course be much higher than 6.9%.  Shippers should not be fooled into thinking the actual increase is 6.9% across the board.  And yet, you would be amazed at how many companies use the average increase figure for their annual shipping budgets. 

Parcel shippers really need to take the time to analyze their individual shipping characteristics to see exactly what the impact will be on their freight costs going into 2023. The FedEx rates will go into effect on January 2, 2023, shortly after parcel shippers incur the Peak Season shipping surcharges, which can also have an unexpected impact on Shippers bottom line profits. 

To put these increases into perspective, the following are some examples of what the “Actual” increase FedEx parcel shippers will experience. 

  1.       Ground Service, 2 Pound Package to Zone 5 – Actual Increase will be 7.6%
  1.       Priority Overnight, 5 Pound Package to Zone 2 – Actual Increase will be 8.5%
  1.       Standard Overnight, 10 Pound Package to Zone 3 – Actual Increase will be 8.5%
  1.       Two Day Delivery, 25 Pound Package to Zone 5 – Actual Increase will be 8.9%
  1.       Express Saver, 5 Pound Package to Zone 8 – Actual Increase will be 11.9%

And that is just the beginning.  The above package rate increases are also subject to a variety of surcharges that are also increasing.  Here is a brief overview of some of FedEx’s actual increases for some of the more common surcharges.

  1.       Address Corrections – 7.7% Increase
  1.       Delivery Area Surcharge – Home Delivery – 10.4% Increase
  1.       Extended Residential Delivery Area Surcharge Ground – 10% Increase
  1.       Oversize Express, Ground and Home Delivery – 17.2% to 22.7% Increase

Besides the GRI, Small Package carriers often introduce new rules and surcharges that can have a major impact on parcel shippers’ bottom lines.  It goes without saying, parcel carrier pricing continues to become more and more complex and difficult to manage on your own.  But remember, you don’t have to navigate these uncharted waters single handedly, there is help available.  

As we have done for over 10 years now, our Parcel Analytics experts has created newly updated 2022 vs. 2023 FedEx General Rate Increase Charts which are available free of charge just by requesting them on our website.   

And, if you really want to finally take control of your parcel shipping costs, reach out to us and speak with one of our Parcel Pricing Experts to discuss how your firm would benefit from our Contract Analysis and Benchmarking Services.       

 

 

FedEx-Contractor Dispute Turns Into Legal Battle

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FedEx Ground made a major business decision that may have repercussions for quite some time.  The package delivery carrier terminated its largest contractor just hours after suing him. This has been a contentious situation for months and now it is officially a legal battle.

FedEx and its largest contractor, Spencer Patton had been locked in a contentious battle over how to handle rising costs.

As reported by Business Insider, this past Friday, FedEx took the unprecedented lead by filing a lawsuit against its largest delivery contractor.  The suit filed on Friday, August 26, 2022 seeks “permanent injunctive relief and monetary damages” related to “false and misleading statements” about FedEx Ground.

“I am being forced to pull our small businesses out of the communities we serve, but we are working hard to re-home our employees,” Patton said. The logistics part of Patton’s business has 225 employees in 10 states. The lawsuit is directed at Patton’s consultancy for the delivery businesses Route Consultant Inc., which the case claims is the true beneficiary of all Patton’s efforts to date.

“We can confirm FedEx Ground exercised its rights to immediately stop contracting with a small number of service provider businesses owned by one individual,” a FedEx Ground spokesperson said in a statement. “While those businesses operate in several locations, they constitute less than 0.5% of the approximately 60,000 total routes across the FedEx Ground network. We have contingency plans in place and do not anticipate any impact to service based on these contract actions.”

The lawsuit filed this past Friday by FedEx Ground was a dramatic ending to a fight that got serious back in July, when Patton warned that FedEx Ground’s unwillingness to address the concerns of the 6,000 independent contractors who deliver its packages was driving many out of business and putting its network in “peril.”

Patton for his part has moved to form a trade group to represent contractors and talked about getting the small businesses franchise status. He has encouraged his fellow contractors to be wary of FedEx’s pay offerings for the upcoming holiday season and said that if FedEx didn’t make operational and contractual changes by November 25, he would shutter his delivery service — a threat that is now meaningless and one has to question whether Mr. Patton “shot himself in the foot.”

FedEx of course has insisted that their Ground Delivery Network is sound and that it will consider any attempt at collective bargaining a breach of contract.

Looking back on how we actually got to this point, are the following facts:

  • FedEx Ground contractors have had various long-standing grievances. High on the list is FedEx’s move to seven-days-a-week service which started back in May, 2019.  Several contractors felt that there has never really been enough demand for Sunday deliveries to make it profitable.
  • Adding to that point, things deteriorated last winter when FedEx overestimated package volume for the 2021 holiday season. The huge disparity between projected volumes and actual volumes created a situation where many contractors didn’t make enough revenue to cover the cost of ramping up their operations, and many told ”Industry Insider’s” they still have not recovered financially.
  • This past January, 800 contractors signed a joint letter to FedEx Ground detailing their problems with rising costs, especially fuel, and diminishing returns. “We need help fast!” the letter read. Contractors said that from 2020 to the 2021 holiday season, their payouts decreased by 20%, although package volume was roughly the same. Vehicle costs were up $10,000, and wages were 30% lower compared to the prior year.
  • In a March 18, 2022 letter to contractors, FedEx Ground’s CEO, John Smith, said the company took a look at the gas and diesel compensation for contractors and decided no special action was necessary. “Our data indicates that service providers operating with either type of fuel are seeing weekly fuel-related payment increases that are commensurate with the recent market fuel price changes,” Smith wrote.

These factor’s, and we believe the final one regarding fuel was the straw that broke the Camel’s back.  “What really lit this powder keg,” Patton told Business Insider last week, was “when FedEx released and highlighted in their earnings report that they had successfully passed through fuel surcharges to the US consumer, and then did not pass through the entirety of those to their contractors.”

Recently, more than 4,000 FedEx contractors — representing roughly two-thirds of the FedEx Ground network — convened in Las Vegas for a conference Patton hosts every year. He used the venue to declare that he would shut down his delivery service if he didn’t see operational and contractual changes by Thanksgiving.

Patton also encouraged his fellow contractors to take a hard look at FedEx’s contract offering for the holidays, calling the deal a chance for the company to “restore the faith of their contractors.” If a critical mass of contractors rejects the deal, that could affect FedEx’s capacity to cash in on its busiest season. “It is one of the most powerful forms of leverage that me and my independent business is able to exercise with FedEx Ground,” Patton said in a conference session last week.

“My heart is in this to see FedEx Ground make lots of money,” Patton said during one of two keynotes he gave at the conference. “I just need to see the contractors make money as well.”

In its lawsuit, FedEx accused Patton of creating a “fictionalized crisis” between FedEx Ground and its contractors “as an advertisement for the purported need for Route Consultant’s consultancy and other services.”

In a statement issued after the suit was filed, Patton said, “I am not afraid of a lawsuit from FedEx.” He also told  Insider in July he knew that losing his contracts was a possibility.

“For years FedEx Ground has used bullying tactics when interacting with their contractors to create an environment of intimidation,” he said Friday evening. “This move to cancel our contracts is a clear case of a $60 billion corporation silencing anyone with a voice.”

Where things go from here is anyone’s guess. Have questions, give us a shout and we’ll do our best to answer them.

Evaluating The Future of Drones

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George Jetson, of cartoon fame, will be born this year and his son Elroy will be zipping to school in an autonomous pod in about 40 years. That’s still science fiction, but science fact is already pointing us to where drone technology can take us in the very near future. 

Automatic delivery of mail and small goods has been around for generations. Skyscrapers were designed around intra-office pneumatic tube mail delivery systems. Local bank drive-thrus still use pneumatic tubes. The FBI had “OBR III”, the Mailmobile, in the 80s, that could carry 800lbs of mail on a loop around the office that would take about 45 minutes to complete. Modern drone technology or UAV (Unmanned Aerial Vehicle), however, is opening new opportunities and is broadening what’s possible for the delivery and cargo industries.

Google, Amazon, and UPS are all working on UAV parcel delivery systems. The process is slow going as the real world is unpredictable and safety is a high priority. Your neighbourhood is not a controlled environment which makes adapting automated technology that much more difficult. There are kids on bikes, kites in the air, people working on power lines or on their roofs taking down holiday lights. All of the everyday happenings in a residential area have to be navigated by automated technology and we are not quite there yet. Additionally, local regulation needs to grow and adapt to developing technology. There are privacy issues, noise restrictions, and safety concerns with having unmanned vehicles so close to our homes. This produces a lag between what technology can accomplish and what the law can provide for. 

Cargo transportation by UAVs in a warehouse environment doesn’t face the same kinds of limitations. For example, regulations on private property are much less intrusive because the environment can be controlled more. There are less unpredictable elements in a warehouse facility. You can build policies and practices for worker safety making the adoption of UAVs much more flexible. Existing buildings can also be quickly retrofitted for the guidance hardware necessary to run UAVs. Audi, for example, is pioneering just-in-time drone delivery directly to the production line. This can streamline parts storage while ensuring steady workflow as the right part is delivered exactly when the worker needs it.

Perhaps the biggest impediment to the adoption and widespread use of UAVs in logistics is the cost. Standardised, turn-key UAV systems don’t exist yet. Building anything like that is a serious capital investment, and risk-averse companies will be slow to adopt unproven technologies. We also can’t ignore the human resource element here either. While, by definition, UAVs are unmanned, they will require a whole new job category of technicians to build, program, maintain and service a fleet of drones. Education and workforce training could also slow down the adoption of UAVs in all segments of society.

One day we will have ice cream truck drones zipping around the neighbourhood, but only after the logistics industry has perfected the technology first. 

Are you curious what other technology is on the horizon in logistics and supply chain? Contact us today to learn more.