Articles about upcoming changes to shipping rates aren’t something you’d previously find while scrolling through the Baer Necessities. But, we feel this information is important to share because we’ve recently expanded our services to include promotional and branded product procurement. Carrier rate increases will now directly affect many of the customers with which we do business.
What price hikes are on the horizon?
UPS revealed days before its third quarter earnings report that a general rate increase (GRI) of 6.9% will take effect on December 27. A price hike of that size, nearly 7 percent, has never been implemented by the company before and tops analyst expectations. The UPS website indicates the rate change applies to air, ground and international delivery services. The company is also setting higher surcharges for deliveries in certain residential or rural areas and for deliveries that come with extra handling requirements.
The higher prices come at a time when logistical and supply chain issues have already hurt business operations nationwide, and inflation is keeping costs of all kinds stubbornly high. Though, the decision by UPS was not wholly unexpected, because it follows a similar move by its chief rival, FedEx. FedEx announced the same average rate hike, 6.9 percent, back in September. This response from UPS continues what has been a historical back-and-forth between the two companies in mirroring each other’s rate increases.
“The similarities between the two aren’t a coincidence,” said Kevin Miller, VP of data insights at logistics software provider Sifted. “If one of the carriers decided to implement lower rate hikes than its competitor, its network would be overwhelmed by a surge in demand that would hurt service levels.”
Why did UPS and FedEx increase their rates?
UPS says the rate increases support capability enhancements while helping maintain high service levels, and executives from both carriers have pointed to inflationary pressures as the primary cause for the price hikes. However, the GRIs are the highest in the history of either company, exceeding what was forecasted for 2023. FedEx and UPS usually raise their GRIs between 4.9% and 5.9%, and even when taking inflation into consideration, analysts expected an increase of about 6%.
When can shippers expect relief?
On a recent earnings call, UPS CEO Carol Tomé implied the pricing pendulum may soon be swinging back in businesses’ favor. Although the company is presently prioritizing increasing per-package revenue to expand margins, she says UPS is open to passing on the savings generated from its in-house productivity initiatives to its customers.
“In fact, as we continue to drive productivity inside of our business, we’re willing to give some of that back to our customers through a revenue share, because why not?” Tomé said. “If we can increase delivery density…we’ll give some of that back, because we should.”
Knowledge is Power
When investing in promotional products or branded apparel, it’s important your business partner keeps you informed about significant changes in shipping rates. Your budget is at stake, and knowing higher GRIs will be in effect at UPS and FedEx can help you plan out your shipping strategy in 2023 and beyond. The team at Baer is committed to transparency and building trust to help our customers navigate modern-day logistics challenges and stay the course during turbulent economic times.