Decoding the Announcement: Understanding UPS Rate Increase Notifications
Most companies recognize the critical importance of understanding their costs and adjusting their business strategies accordingly. Failure to adapt to rising costs can lead to significant erosion of profits. Different companies react to rising costs in various ways. Some may increase their product or service prices, while others might adjust manufacturing processes or seek new vendors.
Knowing that your costs are rising by a certain percentage provides clear guidance on the actions needed to protect your profit margins.
The Challenge of Unpredictable Costs
But what happens when you don’t know how much your costs will rise? Worse yet, what if you’re unaware that they are rising at all? The result is what we call “Profit Leaks” – the erosion of your profit margins.
In the small parcel shipping world, the pricing strategies of major carriers are causing more profit leaks than ever before. Annual General Rate Increase (GRI) amounts announced by carriers often need to be taken with a grain of salt. Accessorial rate increases and the unique characteristics of shipments can drive costs much higher than the announced GRI amounts.
Midyear Changes and Their Impact
Adding to the complexity, parcel carriers are now making midyear changes that increase shipping costs. These changes are extremely difficult for most companies to quantify.
For example, in April, we detailed Midyear Changes UPS and FedEx made to their Delivery Area Surcharge (DAS) zip codes, impacting costs for shippers. The number of zip codes subject to DAS surcharges increased, raising costs per package by $3.95 to $5.85, with even higher costs for Extended DAS zip codes. These newly added zip codes were mainly in major metropolitan areas.
In March, UPS also announced that “effective June 17, 2024, the applicable zone will change for certain origin/destination ZIP code pairs.” However, no additional details were provided, which did not surprise us.
Analyzing the Changes
UPS made similar zonal changes when their 2024 rates took effect in December. We expected this sneaky approach to cost increases to become more common, but seeing it happen twice in one year was unexpected.
Without specific details, it’s difficult for shippers to understand the impact. To assist, ICC Logistics launched a comprehensive analysis of 70 UPS Zone charts from various US origin points, including key distribution center locations. The chart below summarizes our findings:
Zone Jump | Number of Changes | Percentage of Total |
4 to 5 | 111 | 19.30% |
2 to 3 | 105 | 18.26% |
3 to 4 | 103 | 17.91% |
5 to 6 | 68 | 11.83% |
6 to 5 | 35 | 6.09% |
5 to 4 | 32 | 5.57% |
6 to 7 | 29 | 5.04% |
7 to 6 | 28 | 4.87% |
7 to 8 | 20 | 3.48% |
4 to 3 | 18 | 3.13% |
8 to 7 | 15 | 2.61% |
3 to 2 | 11 | 1.91% |
Of the 575 changes analyzed, 76% resulted in higher zones. While these changes might seem minor, they could be strategically targeted at high-volume zip code pairs.
Financial Impact of Zone Jumps
The true impact of these changes can only be determined by analyzing actual shipping activity or partnering with a company like ICC Logistics. In a previous blog, we detailed the cost increases driven by zone changes based on UPS 2024 Published Ground rates:
Weight | Zone 3 vs 2 | Zone 4 vs 3 | Zone 5 vs 4 | Zone 6 vs 5 | Zone 7 vs 6 | Zone 8 vs 7 |
1 lb | 3.9% | 9.3% | 4.5% | 2.4% | 2.1% | 0.8% |
5 lbs | 11.1% | 9.9% | 8.5% | 4.0% | 5.4% | 7.0% |
10 lbs | 7.4% | 9.6% | 9.9% | 3.5% | 11.2% | 11.6% |
15 lbs | 7.1% | 5.2% | 12.8% | 15.3% | 20.4% | 10.7% |
20 lbs | 12.5% | 2.1% | 23.0% | 16.5% | 21.7% | 12.1% |
25 lbs | 16.8% | 6.9% | 19.7% | 22.9% | 20.6% | 14.1% |
30 lbs | 18.6% | 9.8% | 19.8% | 24.8% | 16.2% | 17.8% |
35 lbs | 23.0% | 11.8% | 18.4% | 24.2% | 18.2% | 17.7% |
If this data doesn’t convince you to dive deeper into the potential impact of cost increases, remember that these zonal changes affect both Ground and Air shipping costs. Accessorial charges, such as Additional Handling and Large Package Surcharge, which are zonal-based, could also compound your costs.
Though these changes may seem subtle, some increases can reach up to 100%, with many Ground shipments seeing double-digit increases. Significant profit leaks can occur, especially for Air shipments where profit margins might be completely eroded.
At ICC Logistics, we are here to help. We can share the details of our analysis and discuss how we can assist you in determining the true impact of these changes. Don’t hesitate to reach out to us for a quick call to discuss plans for plugging up those leaks!