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Supply Chain Disruptions to Continue

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Why Preparation is Key and 6 Tips to Help You Navigate What’s Next

In a recent blog post we addressed FedEx and their financial and delivery woes.  Today, we dive deeper into the Supply Chain to give us a glimpse into the future.  In an October 27, 2022 article, CSCMP, (Council of Supply Chain Management Professionals), quoted an SAP survey stating 52% of US-based senior business decision makers said their supply chains still needed “much improvement” and 49% expected these issues to last until the summer of 2023.

We certainly agree; between the political unrest in the world, a shortage of raw materials and rising fuel costs, supply chain disruptions will continue to be a major issue for companies and consumers.  Take the auto industry for example.  Without computer chips, they cannot deliver cars.  Combine that with the rising cost of pre-owned cars, prices are soaring and delivery times are lengthening.

Covid-19 created an absolute explosion of Business to Consumer shipments which UPS obviously capitalized on.

Another example is the housing market.  With limited inventory for sale, prices climbed 20-30% during the pandemic.  Buyers were paying as much as $100,000 over asking, with a line of buyers right behind them willing to meet the price.  You would think, with the limited inventory, new construction would be up, but the cost of raw materials and the availability of getting them has slowed the new housing market.  A friend recently ordered a new refrigerator and was told 10-12 week’s minimum before delivery.

And the supply chain shortages aren’t just about products, it’s people too.  With the “Great Resignation,” we continue to face a major labor shortage. Unemployment is low with more jobs than people and yet companies can’t find the right people for the jobs they are seeking to fill. This puts pressure on wages to rise and prices to increase, resulting in inflation, lower profits and ultimately workforce reductions.  Specifically add to these the shortage of drivers and we are living the perfect storm and a vicious cycle.

During this election cycle, the economy was the #1 concern for voters. The SAP survey highlighted a big concern for increased prices leading shoppers to reduce their planned holiday spending. But this might be what economists were aiming for, a slowing down of the economy with the aim of avoiding a recession.

What can Supply Chain Executives do?

  1. Build strong(er) relationships with your current suppliers
  2. Increase and Capitalize on your Spend Influence
  3. Modernize your procurement process (digital transformation)
  4. Improve your analytical and reporting capabilities
  5. Be agile and willing to change where needed (have contingency plans)
  6. Minimize Risk and Show Stability

As people shift further and further to online shopping, things like speed of delivery, product availability and price reductions will weigh heavily on their minds.  Shoppers see the only solution is to buy early so companies need to plan ahead.  Once the model of most companies, “Just in Time” is rapidly changing to “Just in Case.”  The fact is, those with inventory will ultimately get the sale.

In the end, we believe “Inventory will be King”. Shore up each segment of your supply chain and be prepared for a rough ride.  We realize our message is at odds with itself, increasing inventory while reducing costs is hard to do. It might be too late for this holiday season, so start building inventory now to prepare for future near-term sales tomorrow and through 2023.

The need to continually focus on the Big Picture is critical for success.  Plan properly; Execute flawlessly, validate continually, Modify when necessary.

Need help with your Big Picture?  Our Supply Chain and Logistics Executives are here to help your company achieve all of its goals.

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.       

 

 

Nationwide Railroad Strike Avoided

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As reported in the Wall Street Journal, there’s some good news from Washington, DC.  The nation’s largest freight railroads and union leaders reached a tentative labor agreement to avert a nationwide strike that would have crippled swatches of the U.S. economy.

White House officials interceded to broker a deal to avoid transport disruptions that could have snarled supply chains, putting new pressure on prices when inflation has been hovering near four-decade highs. Business groups and key rail customers, such as energy companies and national retailers, had been calling on the government to avoid a strike.

The overall U.S. job market is tight, with wages rising and unemployment low, and the railroads struggling with service issues they say have been caused by worker shortages. Union members had been working without a contract since 2019 and labor leaders had used the negotiations to protest new attendance policies some of the companies had adopted.

Both sides said Thursday they wrung concessions from the negotiations, which produced a deal that runs through 2024. The terms largely reflected a proposal put forth by a federal panel a month ago, including about 24% in wage increases over five years. The tentative agreement must now be ratified by members of the various unions covered by the contracts.

The deal, which is retroactive to 2019, includes a 14.1% wage increase upon ratification. Workers would then get a 4% raise in July 2023 and 4.5% increase in July 2024, as well as five annual $1,000 lump sum payments. There are no changes to health insurance copays or deductibles in the new deal.

Amtrak said Thursday it was restoring long-distance train services that it had suspended ahead of the Friday deadline for a possible strike. The passenger-rail provider was notifying customers to accommodate them on the next available departures, a spokesman said.

The freight railroads, including CSX Corp. and Union Pacific Corp., this week had started suspending transport of some shipments, including industrial chemicals categorized as hazardous, so the cargoes wouldn’t get stuck in their networks under a strike. Officials from the railroads said they were pleased to avert a work stoppage and were working to fully restore services.

Two unions that had held out for better terms—the Brotherhood of Locomotive Engineers and Trainmen, and SMART-Transportation Division—said Thursday they were able to secure changes to company attendance policies. “For the first time, our unions were able to obtain negotiated contract language exempting time off for certain medical events from carrier attendance policies,” the unions said.

The wages and other contract terms largely followed the recommendations of a federal panel appointed by the White House in July to mediate the dispute. Unions had sought raises of 31% over the five-year term of the contract, while railroads offered 17% before the presidential panel drafted a proposed compromise last month. In the previous five-year contract, wage increases amounted to around 13%.

The annual rate of inflation in August was 8.3% in the U.S. Nationally, average hourly earnings for non-managerial employees were up 6.1% in August from a year before, about the same pace as the past year, according to the Labor Department.

On Wednesday, one of the unions said its members rejected a tentative agreement its leaders had reached, while two others labor unions said their members had ratified the agreements. Members of the International Association of Machinists and Aerospace Workers, or IAM, which rejected the deal, were concerned over attendance policies and unscheduled days off if workers or family members get sick, an IAM union official said.

This labor agreement will certainly be watched closely by the Teamsters Union as well as by UPS as they negotiate a new labor agreement in 2023.  We do not expect those negotiations to be quick or painless for either party.

We’ll keep you posted on all the happenings, right here, in real time so be sure to check back.

UPS Logo

UPS Reports Less is More Financial Results

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As reported in the Wall Street Journal, United Parcel Service Inc. reported that higher fuel surcharges and higher shipping rates helped offset a “larger-than-expected” decline in packages shipped in the second quarter.

Average daily shipping volume fell 4% in the U.S. and 9.2% in its international markets from just a year ago.  Continued Covid-19 lockdowns in China, fallout from Russia’s invasion of Ukraine and high inflation have disrupted manufacturing output, UPS said.

“Supply chains are flowing better than a year ago, but we’re not out of the woods,” Chief Executive Carol Tomé said on a conference call with analysts. The Covid lockdowns in different cities in China have disrupted manufacturing and reduced ocean freight volume levels.

UPS holiday packagesWith China’s Zero Covid Tolerance policies, we are sure we have not seen the end of these global supply chain disruptions.  In fact, we expect supply chain disruptions to be the “New Normal” for quite some time.

UPS reported that the lower package volumes haven’t damaged its business, however. The Atlanta-based carrier has been focused on shipping more profitable packages, rather than pursuing volume growth.  As we have reported in the past this is a rather novel approach for freight and package carriers who traditionally looked for market share rather than strictly focusing on margins.  This “New Normal” has allowed many parcel and freight carriers to follow UPS’ lead on profitability, spelling big challenges for shippers trying to control shipping costs.  A global recession that some forecasters are predicting, might however put a dent in the carriers’ plans in the not too distant future.

Part of the volume decline in the U.S. was due to the company shipping fewer packages from Amazon.com Inc., its largest single customer by revenue. The change in the approach, UPS said, frees it up to focus on gaining new and more profitable customers, including small and medium-size shippers, and those in healthcare. Residential deliveries typically are less profitable routes since there are fewer packages per stop.

“We’ve contractually agreed on what makes sense for us versus what makes sense for them. That means that both volume and revenue from Amazon is coming down,” Ms. Tomé said.

UPS projects that revenue from Amazon will make up less than 11% of its total revenue by year’s end, she added. Amazon accounted for 11.7% of UPS’s total revenue in 2021, down from 13% the year before that.

For the remainder of 2022, UPS executives said they expect volume to improve slightly from the first half of the year and for revenue per piece to grow at a slower rate.

The company has said its efforts to pass along costs to customers haven’t damaged the business, as the U.S. job market and consumer spending remain steady. It also has said that it was reaping the benefits of automation and other technological improvements to boost efficiency.

As inflation pressures pile up, Ms. Tomé said UPS is working on a program that could lower shipping costs for some customers. It is running a pilot with a third-party company that would hold individual orders from being shipped for a set period of time until another order is received going to the same address. That would enable more packages to be delivered per stop, she said.

Higher fuel costs drove the bulk of growth in operating expenses in the latest quarter.

UPS has also been paying benefits to retain workers rather than have to rehire them for the coming peak season.

“That’s the money we left on the table, but we’ll get that back in spades by giving great service to our customers during peak,” said Ms. Tomé.

For the June quarter, revenue rose 5.7% to $24.8 billion, helped by revenue per piece shipped increasing nearly 12%. Analysts expected revenue of $24.6 billion.

Profit rose 6.5% to $2.85 billion. Per-share earnings excluding one-time items was $3.29. Analysts polled by FactSet estimated earnings at $3.16 a share.

UPS also raised its share-repurchase target for the year to $3 billion, up from $2 billion previously. It also maintained its financial targets for the year, including revenue hitting $102 billion.

Shares ended down 3.4% Tuesday, July 26th compared with the 1.2% slide in the S&P 500. The company’s stock is down 15% this year, compared with an 18% decline in the S&P 500.

Should there be a global recession in the coming months, it is possible UPS, as well as other parcel and freight carriers may be forced to reduce rates to fill their vehicles.  After all, It’s all about selling space, isn’t it?

Reach out to us to learn more.