UPS Rate Shock: How to Mitigate the Impact

Glenn Gooding [00:00:00]:

The lightweight residential deliveries are getting attacked. Shippers are going to be forced into other modes, build other weights. In essence, hyperinflation is getting imposed into the lightweight e commerce market. Regardless of what you hear about 5.9% general rate increases.

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Glenn Gooding [00:00:25]:

Welcome to parcel perspectives, the podcast dedicated to small parcel shippers. I'm Glenn Gooding and each episode we dive into insights, best practices and strategies to help you navigate this complex, costly market. Join me as we explore ways to strengthen your long term partnerships with your chosen carriers and stay competitively aligned.

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Glenn Gooding [00:00:52]:

Hello everyone. Thanks for joining me for another session of of parcel perspectives. Hey, today I want to try to shed a very specific, focused light on what is happening in the marketplace from a rate increase perspective. Now, all of you have heard many, many times about general rate increases. 5.9 I'm not here to bore you to death with that type of discussion today. What I am here to do is to offer you. I think some of the exceptions that I'm seeing that are really going to create havoc in the marketplace starting this month and really taking effect in 2025. So from a high level perspective, let's kind of get just a macro perspective of what I'm seeing in the marketplace.

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Glenn Gooding [00:01:44]:

First of all, let's talk about very lightweight parcels. In a previous session, I did some discussion around what the post office is doing. USP's with regard to parcel select postal aggregators per ounce billing, all that is still in effect. It's very, very impactful in the marketplace. It's going to be pushing per ounce parcel select shipments into a ground advantage network or into a UPS FedEx or regional carrier network at a substantially increased expense, billed either at 8oz, 16oz or higher weights. In addition to that, the post office has announced they are no longer going to allow for dual labeling of parcels. What does that mean? That means, for example, postal aggregating for UPS surepost. In a UPS environment, if you were to look at a surepost package, it would have two addresses on the shipping label.

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Glenn Gooding [00:02:46]:

One would be for the consignee, including the continental address. The second would be for the local delivery post office, otherwise known as the DDU. And in the UPS world, with their technology and their labor agreement, if they have another parcel going to that same concert on the same day to accompany that surepost package, they will divert that parcel from a post office drop off for USP's final mile delivery and actually make it a brown ups driver delivery. Two parcels on the customer's doorstep. Brilliant move by UPS. The challenge going forward is USP's is not going to allow these dual labels that in effect is going to force ups into a 100% brown delivery surepost environment. Now, more on that topic, probably in future sessions. What I'm trying to set the stage for from a macro perspective is the lightweight residential deliveries getting attacked.

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Glenn Gooding [00:03:50]:

Shippers are going to be forced into other modes, build other weights. In essence, hyperinflation is getting imposed into the lightweight e commerce market. Regardless of what you hear about 5.9% general rate increases. Okay, now let's talk about the other end of the spectrum, the larger parcels, additional handling, large packages, oversized packages, you would pick the carrier. They have their nomenclature. Those two are absolutely getting attacked and it's really, really going to be a predominant cost increase, effective in October and even more pronounced in January. Now, for the sake of an example, I'm going to put up in front of you folks in just a minute. I'm taking some creative liberty.

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Glenn Gooding [00:04:42]:

So to set the stage, FedEx has made an announcement and shown their rates and their surcharges for 2025, their general rate increase. They have increased additional handling surcharge in excess of 20%, as high as 26%, I believe contingent on the zone that it's affected by. Now. Counter to that, UPS has really not released their 2025 rates. They've made some high level overtures, about 5.9, but they have provided for some change in methodology for how they're going to be billing additional handling packages. So for the sake of this example, I'm going to rely on history as an indicator of what will happen in the future. From a macro perspective, lighter weight shipments, regular sized traditional shipments. You as a shipper have options.

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Glenn Gooding [00:05:33]:

You could go ups, you could go FedEx, you could use USP's, typically up to nine or ten pounds. You could use a regional carrier or a courier. You could use the gig economy. There's a variety of options you have provided. You have the sophistication to navigate the performance language ups and FedEx burden you with in their pricing agreements. On the other side of the spectrum, you have much fewer options. Regional carriers don't want larger volume. They don't have an infrastructure or assets to be able to handle that type of volume.

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Glenn Gooding [00:06:07]:

USP's is not built for that type of product, right? So all you really have as an option is Ups or FedEx. In that environment it is a duopoly there. If for some reason it becomes too painful for you in the small parcel arena, your only option as a shipper is to go look at Ltl solutions. Anybody here experience an LTl residential delivery. I know I have. They're not a lot of fun. Here's why I'll get a notification. And traditionally, I will have to be there for the delivery.

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Glenn Gooding [00:06:43]:

And I'm given, at best, a four hour delivery window. Now, a traditional residential delivery could be something where the driver pulls up to the end of your driveway, lowers the lift, Jack puts the pallet on the sidewalk at the end of your driveway and says, have a nice day. Now you have to wrestle that pallet back to the house. You have to take all the dunnage and all the wrapping off of that. And now you have a pallet to dispose of all of the additional ancillary packaging materials and this parcel, this large package to deal with. Not at all customer friendly, not at all fun. You can, however, pay more as a shipper. And you can sign up for a white glove service.

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Glenn Gooding [00:07:29]:

Tighter delivery windows, they'll show up. They will actually unpack the product, bring it into your house, into a room of your choosing. Okay? It's a much nicer delivery experience, but my goodness, you pay a lot of money for that. That's super expensive. So the reality is with these larger parcels, you're kind of a captive audience. So I'm going to share my screen here, and I want to show you what UPS has announced. And then I want to give you an example using the creative liberties I'm talking about, being that FedEx announced surcharge increases for additional handling. UPS has not done that yet, but they have talked about a different billing methodology.

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Glenn Gooding [00:08:10]:

I've taken those two and combined them together, knowing that in a duopoly, what one carrier does, the other is more than likely to do. All right? So with your patience, I'm going to pop something up in front of you right now. So here is a very quick clip of what UPS has announced. First, highlighted in yellow at the top, you can see that if you are paying your ups invoices via credit card, you are now going to get an additional surcharge equal to 2% of the total amount paid to. That is effective October 26. Okay, fairly simple. Hope you understand that. Now, effective October 21, there's a variety of things happening, and we'll unpack things like zip codes and zip codes aligned to certain zones and things.

Glenn Gooding [00:09:03]:

Separate discussion. But what's important here is the third bullet point. Okay. Additional handling packages determined by lengthen, width or length plus girth are subject to a minimum billable weight of 40 pounds. Okay, minimum billable weight of 40 pounds. I want you to get your head around that. Now when we're talking about length. The qualifying longest distance now is 4ft 48 inches.

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Glenn Gooding [00:09:35]:

Okay, think about that for a minute. Any of you out there that's listening to this, that's an operator in a carrier network. Look me in the eye and tell me you guys don't process those packages across the conveyor belt. You'll be lying if you say no because you can't get done. So UpS is changing that methodology. Now I want you to see the impact that has. And we're going to make the assumption that the additional handling surcharge is going to take a subsequent increase very similar to what FedEx has announced. So the next slide is going to walk you through general example.

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Glenn Gooding [00:10:10]:

Here we have a ground commercial package that qualifies for additional handling based on length. This particular package is 49 inches long. It's a zone five. And in the top of this screen you can see that the build weight using traditional DiMM factors and the traditional way that things are done, it's billed at 21 pounds. The scale weight is actually eleven pounds. And what we have listed here are all the ancillary charges that go with that particular shipment. Additional handling longest side, $27. In this example, delivery area surcharge for an extended area $1.96 net less discounts for this client.

Glenn Gooding [00:10:53]:

Now a demand surcharge for additional handling that's been in place the entire calendar year of $3.50. Fuel surcharge of $5.11 and a ground commercial rate of $8.24. All of that adds up for this one parcel shipped today to be $45.81. Now let's apply ups's new billing methodology. Along with FedEx's announced increases on additional handling surcharges. The additional handling longest side now moves from $27 to $34. The delivery area surcharge takes an increase to $2.10. Demand surcharge additional handling effective in this timeframe, moves from 350 to 775.

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Glenn Gooding [00:11:51]:

Fuel now is applied to these things so it's $7.29. And the ground commercial collect is now billed at 40 pounds, not at 21. For $14.27. All in this parcel is taking $19.60 of increase or 42.8% increase. I want you to think about that for a minute and tell me how that aligns with what's being postured in the marketplace. Around a 5.9% general rate increase. Sobering, isn't it? So now the question you're probably asking what the heck do I do about this? What can I do about this? I've already told you, you're kind of hostage to the duopoly here. Here's my recommendation.

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Glenn Gooding [00:12:47]:

You need to do a thorough analysis of your parcel shipping characteristics, from lightweight all the way to the heavier ones. You need to understand where the money is going in your supply chain portfolio, your portfolio that you're tendering to the carriers of your choosing. You need to quantify what these changes mean to you as a business. So one would come back and probably challenge me. If they're both doing it, how in the heck do I get one to move off these Jordans? In fact, you may not. That's a possibility. So now what to do? Well, let's leverage some other macroeconomic conditions. Average daily volume in the US right now is down.

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Glenn Gooding [00:13:34]:

There is capacity in the small parcel delivery network. UPS, Fedex, USP's, they're all clamoring to bring the right business into their network. So my recommendation is what? Idrive professors on a regular basis, look at your spend holistically, understand where the money is going, and articulate and ask of the carrier that doesn't pin them to acquiescing on these specific charges, but forces them either to win or retain your business to find other ways of making you whole as a sugar. I hope that helps you. I'd love to chat with you about this in greater detail. If you have any interest. Again, look for us parcel perspectives. Thank you so much for your time today.

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Glenn Gooding [00:14:29]:

Look forward to speaking with you again in the near future. Bye bye.

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Glenn Gooding [00:14:38]:

Thanks for listening to parcel perspectives hosted by me.

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Glenn Gooding [00:14:41]:

Hellon Goering.

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Glenn Gooding [00:14:42]:

I've been in the small parcel space for 37 years, starting with a deep and broad background working for one of the major carriers as an operator and industrial engineer, later managing pricing at the highest level for the largest, most complex shippers in the world. Since then, I've been a national thought leader and worked to help drive strategy for clients from Fortune 50 companies to startup e commerce businesses, helping them more competitively align in this complex and expensive market. If you enjoyed the show, please subscribe and share with friends. Join us next time for more expert advice and strategies to stay ahead of the shipping game.