Matching rival FedEx’s General Rate Increase, UPS has announced a 5.9% 2024 General Rate Increase (GRI). While the FedEx increases are effective January 1, 2024, the new UPS rates will go into effect a week earlier on December 26, 2023.
As is always the case with carrier General Rate Increases, and noted with an asterisk at the bottom of the announcement, “the impact of these changes on your shipping costs will vary according to your shipping characteristics and the terms of your UPS agreement.” Translated, very few shippers will realize an increase equivalent to 5.9%; most will be higher. It’s important you understand how base rate and surcharge increases will impact your 2024 UPS spend.
While it’s impossible to analyze every change, below are some important takeaways for all shippers to note and assess:
UPS caught off-guard, matches FedEx, raises rates 5.9%
Clearly, UPS was surprised when FedEx announced its annual increase rate. UPS quickly followed with its own 2024 GRI announcement on September 7, but did not release its rates until October 12, a whopping 25 business days later. To no one’s disbelief, UPS matched FedEx with a 5.9% GRI. For nearly a decade, the carriers typically set their annual increase at 3.9% or 4.9%, but bucked that trend in 2022 with a 5.9% increase and then again in 2023 with a record-breaking 6.9% increase. 2024 marks a rare deceleration in annual increases for either carrier in at least a decade, but it is no reason for shippers to celebrate.
Coming off a very public labor negotiation earlier this year, UPS faces headwinds heading into 2024, especially in the first year of the newly negotiated Teamsters contract when labor costs are expected to rise as high as 9% year over year. Similarly, UPS admits losing business during the lengthy negotiation so raising rates higher than FedEx presented the risk of further alienating customers.
It should be noted that UPS has not announced its 2024 SurePost rates as of press time. Shippers using that service should continue to check UPS’s SurePost Rates page for updated rates.
Look for unannounced, hidden cost increases
UPS’s announcement noted that the list of ZIP Codes to which Area Surcharges apply will change, and the list of ZIP Codes aligned to certain zones will change. Most shippers will not have the immediate ability to analyze these zip code changes, which has the potential to be a sneaky way for UPS to increase yield. For example, shippers will see rates increase if the number of ZIP codes hitting Area Surcharge increases overall.
It will be interesting to see how much the net population is affected by these DAS ZIP Code changes. Likewise, if the number of ZIP codes aligned to Zones 2 and 3 shrinks, turning those shipments into higher zone shipments, shippers will again unknowingly see rates increase. Shipware is in the process of analyzing every ZIP code to find any material changes that might have been made.
Rate increases are similar across most weight breaks, but longer zone shippers will see higher increases
As illustrated by the following charts, all services will see rate increases across all weight breaks and virtually all above the 5.9% target line.
As you can see in Chart One below, Next Day Air and 2nd Day Air shippers will see the largest increases across all weight breaks. Conversely, lightweight Ground shippers will see the slowest rise in rates next year.
Chart One (Click to Zoom)
As you can see below, UPS has kept the shorter Zones (2-4) lower than the 5.9% increase, likely to compete with the ever-increasing popularity of regional carriers. Also noteworthy are 2nd Day Air and 3 Day Select rates in Zones 5-8 taking on nearly 8% rate increases.
Chart Two (Click to Zoom)
Can’t forget the effect of Minimum Charges
For shippers with existing discounts, the minimum charge, or floor price, goes hand in hand with the rate increase. The floor price gives additional protection to UPS from any discounts they have already conceded. For example, even if you have a 100% discount, you will pay $10.10 for a ground shipment in 2023 or $10.70 in 2024 without negotiating minimum concessions. Yearly minimum charge increases can have a dramatic impact on your shipping costs.
In Table One, you can see UPS is more aggressive on Next Day Air and Next Day Air Saver services, with increases ranging one and a half to two points higher than the general rate increase. This tactic matches what FedEx announced back in August, as both national carriers realize these services distinguish them from the competition regionals provide. Meanwhile, Ground, 2nd Day, and 3 Day Select all have minimum increases that are the same, or lower, than the overall general rate increase in order to remain competitive with alternative carriers in the market.
Table One
Nearly all common surcharges will increase significantly more than the 5.9% GRI
Most read the headlines, or the email from their carrier rep, and think all their rates are increasing 5.9%. If you are not careful, you can blow your parcel budgets with this thinking because the annual GRI announcement does not limit surcharges to the 5.9% rate increase. Again, this year, most common surcharges will increase significantly higher than 5.9% and, depending on your specific profile, may be extremely detrimental to your parcel pricing. Surcharges make up between 20% and 40% of a parcel shipper’s annual spend. So, it’s critical you understand the impact of these increases.
Of note, shippers of large packages will once again be severely impacted by the 2024 increase. Additional Handling surcharges and Large Package surcharges are increasing 19.5% on average.
UPS often calls surcharges “levers” that can be used to drive revenue to meet investors’ expectations. Remember, though, as these charges increase dramatically year over year, UPS is opening the door for you to initiate negotiations to mitigate these increases.
Table Two (Click to Zoom)
#6 How does UPS’s GRI announcement compare to FedEx?
As has been the case over the past decade or so, the oligopolistic nature of both UPS and FedEx pricing will continue into 2024. As you can see in the charts below, there are very few differences between the two carriers’ most common services and surcharges.
Table Three: Comparison of Base Pricing
Table Four: Comparison of Surcharge Pricing (Click to Zoom)
What can shippers do?
- Know the ins and outs of your shipping data and understand your specific shipping profile. Modeling the rate increases against your current data and 2024 projections is the only way to fully understand how these increases will impact you.
- Diversify your carrier mix. Regional carriers and alternative carriers often offer extremely competitive rates and are becoming more and more viable as cost-effective, reliable fulfillment options. After its merger with LaserShip, OnTrac now covers 80% of the U.S. population. Other regionals, such as GLS, continue to expand. E-commerce and fulfillment giant, Amazon, has started offering a non-urgent ground delivery service for non-Amazon sellers called Amazon Shipping. The service, which can potentially compete against USPS Ground Advantage, DHL eCommerce, OSM Worldwide, UPS SurePost and FedEx Ground Economy (formerly SmartPost), is currently only offered case-by-case basis, but we anticipate a gradual rollout to more shippers in 2024 and beyond.
- Negotiate! Large increases at a time when overall volumes are declining and carriers are competing for business place shippers in strong negotiating positions.
While FedEx’s GRI decreased one percentage point to an average of 5.9% this year, most shippers should still confront double-digit price increases in 2024 after calculating surcharge increases in addition to the base rate increases. Whether you interpret the slowing of the annual increase as gamesmanship between FedEx and UPS or a logical move as overall parcel volume continues to shrink, this is a small win for shippers. How can you spin it into a big win? Reach out to your carrier and discuss mitigation tactics. Consider renegotiating while shippers have the upper hand.
But, before you pick up the phone or fire off an email, ensure you fully understand how the annual increases will impact your unique shipping profile and costs. Whether you perform an analysis in-house or engage a consultancy that offers a complimentary Transportation Spend Assessment, ignoring these large UPS and FedEx increases is ill-advised. If your organization’s parcel shipping costs are in your hands, it’s time to have an informed conversation with your carrier.
