Take a closer look at Additional Handling, Large Package Surcharge and Over Maximum Limits. UPS increased these accessorials during the 2018 General Rate Increase in December 2017 and then again in July 2018, and all 3 are going up again. Additional Handling Weight has increased over 91% in 12 months!
The comparison below of 2018 rates to 2019 rates shows the actual impact by service and weight break. In many cases, the actual increase is over 5% – even as high as 9.34%!
An analysis by zone reveals that the increases deviate from the 4.9% mark quite a bit. SurePost<1lb is taking the biggest hit with zone 2 increase of 9.87%.
This year, UPS is giving its customers only 3 weeks’ notice of the 2019 increase whereas many contracts state that there must be a period of 30 days’ notice. Some of the most notable changes in 2019 will be the following:
Fuel surcharges will now apply to more surcharges than ever before. Included among those are Additional Handling, Over Maximum Limits, Signature and Adult Signature Required.
Fuel surcharges are scheduled to increase, but details won’t be available until 12/27/2018.
UPS will charge a processing fee when Package Level Detail (PLD) is not provided to them prior to delivery.
Both UPS and FedEx continue to create a more complex pricing environment year over year. Many shippers understand that there is usually very little correlation between the carriers’ announced average increase and the actual increase by service level, zone and weight. The impact to their parcel budget can vary significantly from the announced average increase depending on their shipper profile. A more thorough analysis by Shipware’s team of consultants will be forthcoming.
These increases will significantly impact each shipper; however, the increase in overall cost will vary per each shipper’s unique shipping characteristics. Please contact us if you would like a custom analysis to understand the exact impact these changes will have on your business. firstname.lastname@example.org
The USPS just proposed a major multi-dimensional price and structure change with a planned January 27, 2019 implementation. There are a lot of moving parts, including a 10% increase to mail a 1 oz letter with a 29% reduction on the 2ndoz. Business mailers will see a nice increase in the discount to use a Postage Meter with savings per letter increasing from 3 to 5 cents.
The focus of this article is understanding how the proposed changes in the USPS Commercial Plus Pricing will impact shippers. Part 2 will go into more depth and include some actual case studies to see how the USPS will fare in 2019 with their continuing goal of earning more business from UPS and FedEx shippers.
Highlights of the Proposed 2019 USPS Shipping Rate Changes
Priority Mail (PM) Commercial Plus Pricing” (CPP) will be the same as “Commercial Base” (CBP).
Reported 5.9% increase for PM is understated, with CPP users taking a bigger hit.
First Class Package Services (FCPS) switching to zone-based pricing and a reported 11.9% increase.
Dimensional Divisor for Priority Mail (PM) is being reduced to 166 from 194 and will now include ALL zones. These Dim Policies will also apply to Priority Mail Express (PME) and Parcel Select (PS)
“Balloon” pricing is removed in all categories that include the new Dimensional rating rules.
First Class Package Services (FCPS) – Commercial
Eliminated “no zone” pricing making YoY comparisons more difficult. See Chart 1
Commercial + 11.9% (Note: Retail + 13.3%)
Inner zone (Zones L-4 = less than 600 miles) +6.7%.
Outer Zones 5-8 up a whopping +15%.
Shippers with high zone 8 profile, very common with only a single Distribution Center (DC) on one of the coasts, will see a 21% increase. This will entice those to consider opening a second DC or use 3rd party fulfillment options. For example, Amazon should see an increase in subscriptions to their FBA programs.
Over a lb. To give you a better perspective on how massive this increase is, using Zone 5 rates as the median and a cumulative 5 yr. comparison, this year’s change raises the 5-yr. average to 31% from 19% (2014-2018). See Chart 2
Priority Mail (PM)
Priority Mail (PM) “Commercial Plus Pricing” (CPP) will be the same as “Commercial Base” (CBP).
The USPS provided guidance prior to the 2016 rate change that CPP pricing would go away in 2017. This never happened.
In 2018, the USPS indicated their intention to make CBP pricing relevant again.
The USPS will reap a quick 3% revenue jump by eliminating the current delta between the rate tables.
Reported 5.9% increase for PM is understated, with CPP users taking a bigger hit.
For example, let’s compare average increases in the highly used lanes (≤ 2 lbs, zones L-8).
CBP +4.6% (Chart 3)
CPP +8.2% (Chart 4)
Dim Divisor for affected packages will be reduced from 194 to 166 and will now apply to all zones; balloon pricing for zones L-4 is eliminated.
Negotiated Service Agreements (NSA) to allow for custom dimensional weight divisor, dimensional threshold, non-rectangular dimensional adjustment factor, or limit the applicable weights and zones.
1728 cubic threshold is maintained. (no Dim policy in effect for packages under 1 cubic foot)
Flat Rate Products
Flat Rate Envelopes and Sm Pkgs.
CBP + 6% (Chart 5)
CPP +9% (Chart 6)
Flat Rate Med & Lg Pkg
CBP – Minor price decrease. (Chart 5)
CPP +3% (Chart 6)
Regional Flat Rate +4%.
Cubic pricing +6.6%. (Chart 7)
Parcel Select (PS)
With the huge growth of e-Commerce “free” shipping, e-tailors favor economy shipping options. A majority of these are inducted via Parcel Select, although many will not recognize the name. They are better known by their popular brand names like UPS SurePost, UPS Mail Innovations, FedEx SmartPost, Pitney Bowes Newgistics, OSM Worldwide and DHL SmartMail. Collectively known as “Consolidators”, these companies perform and enjoy “workshare incentives” from the Postal Service for: collection, sortation, transportation, and deep induction within the USPS network for final mile delivery.
Important to realize that Consolidators use these programs differently, with some offering as many as 3 service levels. It is possible to get 2-3-day transit times and compete with FCPS and PM.
New (PM) Dimensional rating policies will apply (see PM Dim policy above).
PS Destination Entry (DDU) +9.9% and PS Sectional Center Facility (SCF) +9.6%.
5 Yr. cumulative average increase down slightly to 30% from 31% (2014-2018). (Chart 8)
Parcel Select Lightweight (PSL)
Ounce-based – no zones, based upon induction point.
+ 11.5% for DDU induction, and +10.8% for SCF. (Chart 9)
New Dim policies do not apply to PSL
Parcel Select Ground
Single Piece, 1-70 lbs., zone based.
Often used for OMRD – Haz Mat to avoid Air transport.
Was closely aligned with PM Base, now is about $.20 less on average per lane.
USPS International Shipping Rate Changes
Retail – no changes to outbound pricing.
Flats limited to 15.999 ounces from previous 64 ounce limit. Earlier removed ability to ship products in this category.
Commercial (note: Base and CPP are the same).
Expedited Global Express Guaranteed (GXG) +4.9%
Priority Mail Express International (PMEI) +3.9%
Priority Mail International (PMI) +3.9%
International Priority Airmail (IPA), International Surface Airlift (ISAL) including associated M-Bags +19.9%
Airmail M-Bags +5.0%
First Class Package International Service (FCPIS) +3.9%
This is a major increase, no way to sugarcoat it. Shippers will be well advised to analyze their shipping distribution profile to gauge how these changes will impact their costs. It will be a good time to look for savings by examining routing logic, review carrier contracts, and network with industry peers.
Part 2 of this topic will include in-depth studies to estimate how USPS will compare to discounted FedEx and UPS rates that larger shippers command in the marketplace. I believe the USPS has done their homework and carefully raised rates where they continue to dominate with little competition. For those who control pricing in their own business, you know how challenging it can be to raise pricing. This is not lost on the USPS, they know there is a much stronger elasticity in the “Competitive” (Shipping) arena than in the Market Dominant (Mailing) side, which means that there is a known significant drop % in volume for every % increase in price.
In the meantime, feel free to reach out to us with questions or to ask for help. Wishing you great shipping success.
Gordon Glazer, CMDSM, CMDSS, MDP, MDC is a Senior Consultant, USPS Specialist at Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs by 10%-30%. Gordon is a postal industry veteran with 32 years of experience and is a sought-after speaker and industry thought leader. He welcomes your questions and comments, and can be reached at 858-879-2020 Ext 108 or email@example.com.
Shippers shouldn’t confuse this rate change with the weekly, normal fluctuation in fuel surcharge percentages based on market prices (as published by the Department of Energy), described as follows: “The fuel surcharge percentage for FedEx Express services is subject to weekly adjustment based on the weekly published U.S. Gulf Coast (USGC) spot price for a gallon of kerosene-type jet fuel. The fuel surcharge percentage for FedEx Ground services is subject to weekly adjustment based on the weekly published national U.S. on-highway average price for a gallon of diesel fuel.”
What’s different about the Sept. 10 rate change is the fact that FedEx added .75 percent to previous Express fuel surcharge tables, and a full 1 percent to Ground fuel surcharge tables.
Moreover, for the first time ever, FedEx created separate, higher fuel surcharges for international products.
Measuring the impact from the previous week, FedEx shippers just took a 16 percent to as much as a 69 percent rate increase!
How do the new FedEx fuel surcharges compare to its rival UPS?
Well, since November 2012, FedEx customers have enjoyed lower fuel surcharges than UPS. Not anymore (see chart below).
Shipware is here to help you understand the financial implications to your business and, more importantly, give you tools to push back on these austere rate hikes. If you would like to investigate options with our expert team, please contact us at 858-879-2020 ext 111.
The FedEx/UPS near-duopoly has allowed the two large carriers to control marketplace pricing for years, echoing each other’s rate hikes to the detriment of parcel shippers, small and large. It’s no surprise then, on the heels of UPS’ latest intra-year pricing changes, that FedEx has recently announced its own set of rate increases, effective September 3rd.
The Additional Handling surcharge, for packages weighing greater than 70lbs, will increase from $12 to $20 for domestic express, international express, and domestic and international ground. Similarly, July 8thsaw UPS raise its Additional Handling surcharge on packages weighing more than 70lbs from $12 to $19 and increased its Large Package Surcharge from $80 to $90.
FedEx’s Unauthorized Package Charge will increase 125%, from $300 to $675, keeping them in line with UPS’ increased Over Maximum Limits charge which jumped from $500 to $650 on June 4th.
In addition, shippers will also see incremental, “peak” seasonal increases by FedEx to some of these surcharges to domestic express and domestic and international ground shipments between November 19thand December 24th. Compare these to the peak increases that UPS will institute between November 18thand December 22ndto all service levels and all domestic destinations.
FedEx Ground Unauthorized Package Surcharge: $150 per package / UPS Over Maximum Limits: $165 per package
FedEx Oversize Charge: $27.50 / UPS Large Package: $26.20
Shippers saw changes to these same charges earlier this year, in terms of the surcharge amount as well as to how they’re calculated.
These rate increase announcements signal the continuation of a trend that began last year. The carriers don’t want these packages in their parcel network, but in their freight/LTL network. If shippers don’t adjust accordingly, they will find themselves paying a premium. Expect this trend to continue.
The one area FedEx and UPS differ, in terms of these latest rate increases, is the Peak Residential Surcharge. Surprising many, FedEx will not implement this surcharge for the second straight year, while UPS will not only apply the Peak Residential Surcharge once again, but will raise the rates established last year.
This could give FedEx a competitive advantage with shippers looking to shift some volume prior to peak.