Parcel rates 2019: Looking ahead to mitigating costs

Parcel rates shift and change year after year. It can be tough to keep up with the rapidly changing parcel industry; fortunately, we’re here to help you with that!

December 20th, 2018 Blog Market Trends

Parcel rates will be updated (and in a few cases, already have been) across the industry, including FedEx, UPS, and USPS. We’ve broken down what each adjustment entails, what that means for your business, and how to mitigate potential changes to the cost of doing business.

First things first, fear not. The 2019 increases are on par with increases in recent years, averaging a 4.9% increase across domestic parcel services. While we’ll see surcharge increases for large packages or packages requiring additional handling, there is no increase to dimensional weight.

Now let’s talk specifics.

FedEx

FedEx’s increase takes effect January 7, 2019. The average base rate for Express, Ground, Home Delivery, U.S. Import, and U.S. Export services will increase by 4.9%. Surcharges will rise slightly, too: additional handling will cost $13.50 (up from $12 last year) and oversized items will cost $90 (up from $80 last year).

UPS

UPS’ rate increase takes effect the soonest, on December 26, 2018 (incentive to avoid sending your holiday shipments too late!). Like FedEx, the average base rate for Air, Ground, and International services will increase by 4.9%.

UPS’ new surcharge structure has shifted a bit, so read closely:

Additional Handling surcharges will increase from $19 to $23 for any package exceeding 70 pounds in actual weight.
Additional Handling surcharges for all other packages will increase from $12 to $14.25
Large Package surcharges will increase from $90 to $105 ($115 when delivered to a residential address).

USPS

USPS’ 2019 shipping rate changes will take effect January 27, 2019, across all shipping services. Overall, rates increased for most products, weights, and zones. Another update to watch out for in 2019: Extending dimensional weight (DIM weight) to Priority Mail and Priority Mail Express for packages larger than one cubic foot, with the DIM weight divisor changing to 166. Worry not: According to an update from USPS, Dimensional Weight changes won’t be implemented until June 23, 2019, to allow time for adjustments. This includes planned changes to the divisor. Balloon Rate on Zones 1-4 will be eliminated effective January 27 as announced, which may benefit retailers who ship large, light packages.

So, what now?

Our friends at TotalRetail recommend getting a jump on negotiating now. For e-commerce and subscription trade organizations, steeper shipping prices have a direct impact on operating income and profitability. Beyond the obvious impact to the bottom line, shipping costs are a key factor for driving shopping cart abandonment. How can online retailers protect current profitability and customer satisfaction with shipping costs on the rise?

First, take control of your shipping agreements by studying your shipping data in detail and developing custom requirements that best meet the service and price needs for your business. Then, organize a request for service and pricing response based on those specifics and what will work best for your business.

Consider requiring your vendors and suppliers to directly bill your account. This will allow you direct visibility into these shipping fees which are often hidden or “included” in vendor handling fees and eliminate the possible padding of any shipping fees. The additional revenue could even allow for deeper shipping discounts. Direct billing also allows for simplified accounting and invoice reconciliation, as carrier billing systems will subtotal these charges for you upon request.

According to TotalRetail, once in a while companies may forget to file claims. It happens to the best of us: No shipper is exempt from carrier billing errors! Consistently performing invoice audits not only lend to 3% to 7% cost recapture but also lead to better understanding of your company’s distribution footprint and service highlights or areas for improvement.

Having command of your shipping data through detailed analytics and management reporting puts you in a position of strength when negotiating with carriers and controlling your bottom line.

Parcel Industry offers further mitigation tactics. First, confirm you’re utilizing the least expensive services for your business. Using Air or Express shipments may not always be justified. Look for opportunities to use a less expensive service while meeting the same delivery commitments. For example, FedEx shippers sending packages to residential addresses should be wary when utilizing Ground Services. Either with or without contractual rates, it is usually cheaper for shippers to use FedEx’s Home Delivery versus Ground.

Next, consider your zone: Are you shipping from the closest locations?

A shipment’s zone is determined by the origin and destination information of a package. For many carriers, the continental US zones range between 2 and 8, but it may vary for shipments outside of the continental US. Typically, a lower zone indicates the closeness of the destination to the origin, and packages with lower zones cost less.

Also, consider weight and dimensions. We all know heavier packages cost more to ship. The weight used to price packages can come from the actual weight of the packages or from the dimensions. Extra, unused airspace in boxes too large for the product can cause the price of shipping to increase. Of course, shippers should evaluate opportunities to consolidate shipments and orders. While this will increase the billable weight, it is often less expensive to ship one package at a heavier weight than multiple at lower weights.

Need more help understanding how these changes impact your business? Don’t hesitate to reach out to us; we’re happy to provide another perspective!

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