SCDigest Editorial Staff
SCDigest Says: |
If you have not calculated the effect of the GRI announcements (base rates, accessorial increases, DIM rule changes, etc.) on your business you could be facing some embarrassing questions from your employer in February.
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Over the last few weeks, first FedEx and then UPS in near tandem announced a series of published rate hikes for 2011. The headline news was that the average increase at FedEx will be 3.9% and for UPS 4.9%, in both cases net rate changes based on a combination of even high rate hikes combined with a reduction in fuel surcharges. But many shippers can actually expect to see their costs rise even more than those numbers.
UPS announced late last week that its 4.9% net hike would come through a combination of a 5.9% jump in rates and a 1% reduction in the UPS Ground services fuel surcharge, while UPS Air and International services rates will also rise a net 4.9% through a combination of a 6.9% increase in rates and a 2% decline in the UPS Air and International services fuel surcharge.
FedEx had earlier announced similar rate hikes through a combination of base rate increases and fuel surcharge decreases, though the Memphis-based carrier's Express rates will increase a percentage point less than its Atlanta-based rival, coming in at a net 3.9% rise (5.9% base rate increase less 2% reduction in fuel surcharge).
The level of year-over-year increases are high in historical terms and vis-a-vis still relatively soft demand in most markets and services (Asia to US being an exception). But shippers need to be aware of several ways their parcel shipping costs could take a big jump in 2011.
For example, FedEx and UPS accessorial charges are set to increase even more substantially than the general rates. Some of the planned increases in accessorial charges by FedEx for 2011 - the largest in its history - are listed below.
- FDX Express Delivery Area Surcharge up 8.9% ($1.85 vs. $1.70)
- FDX Express Residential Area Surcharges up 10.0% ($2.75 vs. $2.50)
- FDX Express Extended Area Surcharge up 9.1% ($3.00 vs. $2.75)
- FDX Express Indirect Signature Required up 14.3% ($2.00 vs. $1.75)
There was similar news out of UPS, with the Residential Surcharge Ground up 11.36%, the Residential Surcharge Air up 10%, and the Extended Delivery Area Surcharge up 9.09% for residential deliveries and 8.82% for commercial deliveries in some zip codes, among other accessorial charge increases.
Changing DIM Factors Could Pack a Real Cost Wallop
Perhaps having the biggest impact on many shippers, however, are the planned changes by both carriers in the dimensional weight (DIM) factor - a mechanism created a few years ago to enable the carriers to charge more for large but relatively lighter weight parcel shipments (dropping the previous "oversized" fixed surcharge).
Both FedEx and UPS are changing for 2011 the divisor on air and ground domestic shipments from 194 to 166, a factor used to determine whether a package is subject to higher DIM rates (almost, literally, similar conceptually to the IRS' Alternative Minimum Tax or ATM).
"Most shippers again will fail to appreciate how big an impact this change can have," says Jerry Hempstead, a long-time parcel industry executive and now president of Hempstead Consulting.
He notes, for example, that this change will likely mean many shippers that have not been subject to the DIM weighting or only marginally so in the past could now see a higher percentage of their parcel shipments are now impacted. Hempstead says when the DIM concept was first introduced, many shippers at the time did not fully appreciate the impact it would have on shipping costs, and that all parcel shippers should understand how this latest change will potentially impact their spend.
"A shipper that may have had few packages DIM under the 194 rule may wake up in January to find all their packages dim," Hempstead says.
(Transportation Management Article - Continued Below)
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