PartnerShip® Digs into the 2013 Small Package Rate Increases and
Helps Shippers Lessen the Impact

Near the beginning of every New Year, the shipping experts at PartnerShip dig into the small package carriers’ annual rate increase announcements. We like to read between the lines for our customers, digest the tables and charts, see what information is out there that FedEx and UPS didn’t say, or maybe just hinted at. As always, how much more expensive your particular small package shipments will be in the New Year largely depends on many factors, including shipment volumes, sizes, weights, and modes.

Seemingly every year through this exercise, we reveal a familiar story: the actual rate increases most shippers will experience in the New Year are larger than the average rate increases announced by FedEx and UPS—in some cases much larger. This year is no different, except for a new wrinkle. Like years past, many services and lanes will feature rate increases larger than the average increases the carriers announced. But this year, our analysis shows the increases are somewhat lower on the more expensive premium services, and higher on the deferred services the carriers offer, to capitalize on the impact of shippers trading down to economy services.

As the global economy struggles to grow, both major carriers have noted a significant shift by customers away from premium package-delivery services toward less expensive “economy” modes. Part of the reason for these changing market dynamics is that the difference between express and ground delivery times continues to shrink for both FedEx and UPS. Many businesses and consumers no longer believe the 1-2 day difference in shipping time is worth the extra cost of a premium service, unless it “absolutely, positively has to be there overnight,” as the old FedEx commercial used to say. Also, as technology products get smaller and lighter, the carriers charge less to ship them (the Apple iPhone 5 is about 17 percent lighter than the original iPhone). Such diminishing revenue must be made up somewhere.

Both FedEx and UPS have witnessed explosive growth in business to consumer (B2C)/home delivery shipping, fueled by large catalog and online retailers. In 2012, UPS reported that about 40 percent of the parcel shipments moving through the UPS U.S. network in Q3 were B2C shipments as the result of ecommerce transactions. Given that Amazon.com is currently the 8th most visited website in the world and certain analysts predict the online retailer will overtake retail giant Wal-Mart in overall sales by the year 2020, it is safe to predict that B2C shipping will continue to grow.

Trends show that customers are willing to defer shipping to slower, more economical services. As such, our analysis of this year’s rate increases shows much higher percentage increases on economy services to try to offset customers trading more expensive, faster options for more economical, slower options. Where the carriers will make up that revenue is by simply charging more for the products and services shippers use the most. We think it’s safe to predict that rate increases on lightweight, B2C services will continue to outpace other premium service rate hikes well into the future.

Quick Facts

1. UPS rate increase in effect December 31, 2012
   • 4.9% average rate increase for UPS Ground (5.9% average increase -1% reduction in the fuel surcharge)
   • 4.5% average rate increase for UPS Air (6.5% average increase -2% reduction in the fuel surcharge);

2. FedEx rate increases in effect January 7, 2013
   • 4.9% average rate increase for FedEx Ground and FedEx Home Delivery services (5.9% rate increase -1% reduction in the fuel surcharge)
   • 3.9% average rate increase for FedEx Express services (5.9% average increase -2% reduction in the fuel surcharge)
3. UPS will enjoy an extra week of the rate increases by beginning 12/31/12 to FedEx’s 1/7/13.

Your Rates May Will Vary

It’s important to remember that the FedEx and UPS rate increase announcements are presented in terms of averages. You might think then that your 2013 small package shipping rates with FedEx and UPS should go up about 4.9% for ground shipping and 3.9% to 4.5% for air shipments. If you guessed this way to forecast and budget your 2013 shipping costs, you might want to make some adjustments!

Like we detail in this article every year, the FedEx and UPS average rate increases are just that—averages. The “average rate increase” is arrived at by larger rate increases on certain shipment types and lower increases on others. Like always, several factors will determine your real rate increase impact in 2013, among them your package characteristics (size and weight); the service you most often utilize (ground or air); and the zone to which you ship your packages.

2013 Ground Package Rate Increases

As stated earlier, both the FedEx Ground and UPS Ground rate increases are based on a 5.9% increase in the base rate, less a 1 percentage point reduction to the index-based ground fuel surcharge. But let’s examine the true impact to your bottom line based on the weight of packages you ship and the zone to which they are shipped.

FedEx Ground and UPS Ground have identical published base rates for ground packages up to 70 pounds, making apples to apples comparisons possible. Overall, the largest percentage increase for both carriers occurred on packages weighing 20 pounds and less, regardless of zone. This is a result of many shippers migrating lower zone air shipments to the carriers’ more economical ground services. The increase for all packages under 20 pounds ranges between 5.8% and 8.9% over 2012 rates.

Air Rates Increase Dramatically for Smaller Packages

The increases in base rates for FedEx Priority Overnight ranged from 4.0% to 6.5% for packages 150 pounds and lighter. On the UPS side, base rates for UPS Next Day Air increased an average of 5.1% to 7.7%. Of note this year is that FedEx Envelopes are not leading the rate increase tables in terms of largest percentage rate increase, for the first time in recent memory. UPS Letters, true to recent form, were above the stated average in all but one Zone. This year’s highest rate increases appear to have less to do with weight than distance, according to our analysis. Everything from Envelopes/Letters to 150 pound packages is seeing above average rate increases beyond Zone 4/104. This is bad news for higher zone shippers.

 

As we said at the outset of our article, this year’s largest rate increase percentages are featured on many of the slowest and least expensive shipping options the carriers offer. As we begin to dissect slower and more economical services, we correspondingly begin to see larger average rate increase percentages. As the tables below illustrate, FedEx Standard Overnight and UPS Next Day Air Saver saw rates on shipments of nearly all weights and to almost every zone rate increase beyond the stated averages the carriers announced. FedEx Standard Overnight increases range from 4.6% to 7.5% on packages less than 150 pounds, while UPS Next Day Air Saver increases range from 5.2% to 8.5% over the 2012 rates.

Correspondingly, our analysis shows that the rates for shipments in every weight break and every zone we examined for FedEx 2Day and UPS 2^nd Day Air went up by more than the stated averages the carriers announced. The rate increases for FedEx 2Day ranged from 6.5% to 7.5% for packages less than 150 pounds we analyzed; and all rates for packages in the same range increased anywhere from 7.5% to 8.8% over 2012 rates for UPS 2^nd Day Air.

 

Some of the largest increases occur with FedEx Express Saver and UPS 3 Day Select services—some weights and zones actually hitting double-digit rate increases, which we haven’t seen for a long time. Every FedEx Express Saver weight and zone we analyzed featured rate increases above the stated carrier average, ranging from 6.0% to 10.3%, with the largest increases in the shorter zones. UPS also took substantial increases on its 3 Day Select service as you can see in the below table, with increases ranging from 5.4% to 9.7%.

 

 

UPS Air Rates vs. FedEx Air Rates

Our analysis examines UPS Daily Rates and FedEx Standard List Rates. It is important to acknowledge that in early 2011, UPS introduced a new set of base rates, Standard List Rates. UPS Standard List rates are higher than UPS Daily Rates and virtually identical to FedEx Standard List Rates. UPS has been placing all new customers who establish a UPS scheduled pickup account on Standard List Rates, rather than Daily Rates as they did in the past.

And keep in mind that both carriers have Retail Rates, with higher base rates than either Standard or Daily Rates, which affect customers who ship from a retail store location. These rates, while not included in this analysis, are also increasing for 2013.

 

Don’t Forget About The Surcharges!

Both FedEx and UPS also announced increases to other fees and surcharges for 2013. It may surprise you to learn that fees for extra services can account for up to 20% or more of your total transportation costs. The table below provides a look at some of the 2013 changes in store for a few of the more common carrier service charges.

 

 

Conclusion

As it has been in the past, the real impact of the 2013 rate increases depends on what you ship, where you ship it, and the size and weight of your packages. The important takeaway when thinking about your shipping expenses in 2013 is that the announced average increases paint an inaccurate picture of the true impact these new rate increases could have on your business. If you find yourself confused by rate bases, average increases, and surcharges – rest assured that you are not alone

PartnerShip, a leading national freight management company and small business advocate, helps more than 16,000 organizations reduce their small package, LTL freight, and tradeshow shipping costs. PartnerShip has the experience and expertise to help you get the most from every shipping dollar. Businesses that participate in one of our exclusive PartnerShip® Shipping Programs receive valuable consultation and carrier routing services, helping them counter annual carrier rate increases with significant savings. Our services are available at no cost. Let one of our shipping experts provide you with a free, no obligation shipping analysis and a review of your existing carrier agreements to ensure you are getting the most for your shipping dollar. Call PartnerShip today at 800-599-2902, email us at sales@PartnerShip.com, or visit us online at PartnerShip.com.