Controlling small package shipping costs has become increasingly challenging in recent years. Shippers are grappling with a relentless wave of General Rate Increases, Peak Season Surcharges, changes to surcharge rules, and more. Parcel carriers continue to adopt aggressive pricing tactics, prioritizing their own profit growth through creative strategies.
The Impact of Hidden Costs on Businesses
Last year, we published a blog discussing how an individual employee at Macy’s “intentionally” concealed $132 million to $154 million of delivery expenses over several years. This case highlighted the extreme measures companies might take when faced with unmanageable shipping costs.
The introduction of complex pricing tactics by carriers has made budgeting increasingly difficult, likely contributing to declining profits across industries.
UPS Zonal Changes: A Closer Look
One such pricing tactic involves UPS’s adjustments to zones for “certain Zip Code Pairs.” In 2024, UPS made zone changes three times, including a significant update on October 21.
These changes are largely invisible to shippers, as carriers do not disclose specifics. Without thorough analysis, shippers may face unexpected cost increases, well beyond their budgets.
Key Findings from Our Analysis
Following the October changes, we conducted a comprehensive study of 75 origin locations, analyzing 811 zone changes. Here’s what we found:
- 70% of changes resulted in higher zones, while only 30% saw a decrease.
- Though the number of changes seemed small, the financial impact on shippers with high volumes in affected areas could be substantial.
- Zone increases significantly outpaced decreases, particularly in densely populated regions.
Digging Deeper: Population Insights
To better understand the potential impact, we examined zone changes from three distribution center origin points and analyzed destination zip codes by population. The results were striking:
- 39 changes reflected zone increases, affecting destinations with a total population of 26.2 million.
- 22 changes showed zone decreases, impacting zip codes with a population of just 5.8 million.
- Areas with zone increases included major hubs like New York City, Los Angeles, Boston, and Atlanta.
- Areas with zone decreases were smaller, less populated cities such as Havre, MT; Butte, MT; Des Moines, IA; and Eugene, OR.
The Financial Impact on Shippers
An increase in zone typically equates to an increase in cost. For example:
- Ground shipments can see rate hikes of up to 25%.
- 2nd Day Air shipments may increase by as much as 50%.
Shipping patterns tend to mirror population density, meaning many shippers will likely see their costs rise due to these changes. Without in-depth analysis, understanding the true impact on budgets and profit margins becomes nearly impossible.
The Solution: Data Visibility and Modeling
To control shipping costs, shippers must gain visibility into how carrier rate changes affect their specific shipping volumes. This requires solid data analysis and modeling capabilities to account for carrier changes.
Without these tools, one thing is “certain”—your company will face eroding profits.
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