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Seasonal shifts significantly impact logistics costs. The result? Shipping companies adjust their pricing strategies to remain competitive.
One common approach is implementing a General Rate Increase (GRI). Both UPS and FedEx have announced a 5.9% GRI for 2024, a slight decrease from the previous year's 6.9%.
In this article, we'll explore the concept of GRIs, examine the current rates for major carriers, and share strategies for managing these fluctuations.
A General Rate Increase (GRI) refers to the adjustment in the base freight rates implemented by carriers to account for operational costs, fluctuating fuel prices, and other economic factors. Like inflation, GRIs also help carriers account for the growing cost of serving shippers year over year.
Other factors that may account for GRIs include:
GRIs affect the overall cost of transporting goods across worldwide routes, directly impacting shipping companies, freight forwarders, and consumers. These rates are typically announced by shipping lines and are common in the volatile shipping industry to maintain profitability amidst changing market conditions.
Although logistics companies use GRIs and surcharges to adjust the cost of transporting goods, they differ in purpose and application.
In terms of its purpose, a GRI is a planned adjustment to the base freight rate. It reflects long-term economic changes like:
On the other hand, a surcharge is a temporary fee added to the base freight rate. Unlike GRIs, surcharges usually address short-term costs from fuel price volatility, port congestion, or seasonal demand.
Since a GRI reflects long-term economic changes, these are applied for longer periods. Meanwhile, surcharges are usually applied temporarily and may fluctuate.
Another notable difference between GRIs and surcharges is their scope. While GRIs are applied to an entire trade route or a set of trade routes, surcharges are specific to particular routes or regions. They may also depend on seasons, such as the holiday season or periods of high demand.
An important factor that shippers must understand is that any surcharges or accessorial fees added by carriers throughout the calendar year are not reflected in the current GRI. That said, each additional surcharge or accessorial fee adds to the GRI. Following this year’s 5.9% GRI, each additional surcharge or accessorial fee adds to the 5.9% increase.
Major carriers have announced the GRI for 2024 as early as August 2023, which took effect on January 1, 2024.
FedEx announced in August 2023 that shipping rates for FedEx Express, FedEx Ground, FedEx Ground Economy, and FedEx Home Delivery would increase by 5.9%. In addition, FedEx Freight shipping rates will increase by an average of 5.9% to 6.9% depending on the customer's transportation rate scale.
Following FedEx's announcement, UPS declared a 5.9% GRI for 2024, a slight difference from last year's 6.9% GRI.
Similar to FedEx and UPS, DHL announced a 5.9% GRI effective January 1, 2024, for US account holders. This rate also varies per country and depends on local conditions. For example, the GRI for the Czech Republic ranges between 7.9% and 8.9%, while the Philippines has a 4.9% general average increase.
Smaller carriers have also followed suit and announced their respective GRIs for 2024:
LoneStar announced in October 2024 a 5.9% increase, following announcements from FedEx and UPS.
Effective January 1, 2024, OnTrac shipping rates will have an average increase of 5.9%.
Pro tip: Shippers can consider bringing on a regional carrier or two, as they can be more responsive and economical. Exploring such options is just one way to adapt to rising costs.
As global trading costs continue to increase, navigating these changes requires planning and adaptability. Here are key methods to help your business manage and mitigate the impacts of GRIs:
Choosing less congested or shorter routes can help businesses save on fuel, time, and port fees, significantly affecting the total shipping cost.
Rerouting shipments to less expensive ports also helps avoid bottlenecks, as tolls and waiting times can increase during peak seasons. Plus, companies can diversify shipping routes to find competitive rates in different markets or regions.
Companies can lower shipping costs by storing inventory in warehouses or distribution centers strategically placed near consumer hotspots. Using fulfillment centers or third-party logistics can also reduce expenses, especially in areas where freight rates are elevated.
Another way to keep up with GRIs is to take advantage of bulk shipping discounts and leverage volume commitments. Full container loads (FCL) can significantly lower the per-unit cost of shipping. When a company ships multiple orders together, this optimizes container space and reduces less-than-container-load (LCL) shipments, which are more expensive.
Combining multiple orders into FCLs also plays a critical role in negotiations with carriers, as it guarantees them steady work and income. In the future, they might be willing to offer bulk shipping discounts or better terms.
During high GRIs, companies can offer alternative shipping methods like rail, trucking, or air freight. This depends on the shipment's urgency, cost, and environmental impact.
In some instances, rail may be a cost-effective option compared to ocean freight for certain routes. Offering different shipping methods also provides customers the flexibility to choose a method that minimizes the overall costs despite the financial burden from GRI.
Revisiting policies can help manage the costs and pass on some of the increased shipping expenses to customers. For example, companies can implement and adjust free shipping thresholds on certain routes. Customers love free shipping; it encourages them to add to their carts just to qualify for the offer. With more orders, you can offset the higher freight costs!
Implementing flat rates can also be a good strategy. They are simple and straightforward, since you charge the same amount regardless of the order's weight or size. Adjusting shipping policies can ensure that your margins remain protected during high shipping rates.
It's important to regularly review and compare carrier options, especially when there's a high GRI. Start by analyzing their strengths, like regional expertise or cost-effectiveness, on a specific route.
Some carriers offer better rates or more efficient routes. Others have better terms depending on surcharges and services. From there, you can allocate shipments accordingly. Just like diversifying your transportation options, evaluating and exploring carrier options may offer savings in the long run.
To wrap up, GRIs are essential adjustments to maintain carriers’ profitability amidst economic changes and factors like fuel and labor costs. Despite their financial implications, companies can still benefit and keep up with GRIs by making certain adjustments, such as:
These allow companies to offset higher costs while maintaining profitability and service quality!
For tailored solutions to optimize shipping costs, let iDrive Logistics help your business ensure profitability through innovative shipping and fulfillment support. Get in touch with us today, and we’ll help you find the right solution for your business.
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