The annual rate adjustment season is upon us. In September, FedEx caught UPS off guard by announcing its plans for a 5.9% average general rate increase (GRI), effective January 1, 2024. Less than a month later, on October 12th, UPS followed suit, announcing an identical 5.9% rate increase.
This UPS rate increase will raise the cost of a broad array of UPS services—including Economy, Ground, and Next Day—and applies to U.S. domestic as well as export and import operations.
So, what are the reasons for and ramifications of such an increase i your shipping expenses?
Here’s what you need to know about UPS rate increases.
What Is the UPS GRI?
The General Rate Increase (GRI) is a standardized mechanism employed by leading shipping carriers like UPS and FedEx to update their pricing schedules. It's presented as a necessary step to stay aligned with inflation, counter rising operational costs, invest in new technologies, enhance services, and perform fleet maintenance. However, it's essential to remember that this financial buffer primarily benefits the carriers themselves, not their customers.
When Is the UPS GRI Effective Date?
In its October announcement, UPS confirmed that the 5.9% GRI will go into effect on December 26, 2023. This timing, just after the holiday season, can pose challenges for businesses already dealing with peak shipping demands.
After navigating the heavily publicized labor negotiations earlier in the year, UPS encountered significant challenges as it prepared to move into Q4 of 2024. This is particularly true in the first year of the new five-year Teamsters contract, under which labor expenses are projected to escalate by as much as 9% year-over-year.
In light of these increased labor costs, some analysts speculated whether UPS would raise its GRI higher than FedEx. However, given that the protracted negotiation process had already adversely affected business, UPS's leadership opted against it. They deemed that a higher rate hike would likely exacerbate existing tensions with their customer base and potentially drive customers into the welcoming arms of their chief rival FedEx.
How Does this Compare to the UPS Rate Increase 2023?
While this year's 5.9% rate hike is lower than the previous year's 6.9%, it's still well above historical pre-pandemic norms of 3% to 4%. This rate reduction, while a welcome change, merely reflects an adjustment to current market dynamics rather than a genuinely customer-friendly approach.
Other Charges to Consider
The GRI average only paints a partial picture when it comes to understanding and controlling your total shipping expenses. Beneath that 5.9% rate hike are various additional line-item costs that might cause the cost of shipping to unexpectedly balloon. Specifically, businesses must account for the following two factors:
- Surcharges – These are separate fees that carriers impose on top of standard rates, such as charges for oversized parcels, additional handling, and delivery area surcharges. Often unseen but impactful, these surcharges can quickly inflate your final shipping rates by more than 10%.
- Minimums – The concept of 'minimums' represents the baseline charge for sending any package, separate from any special rates or discounts. These can be particularly surprising for shippers, creating a discrepancy between expected and actual costs—the standard minimum for overnight express services will rise by nearly 8%, but the ground minimums are only increasing by the stated 5.9%, which is a departure from prior years.
How Does the GRI Impact Businesses?
Understanding the ripple effects of the GRI on your business is crucial for proactive planning. Here's a quick rundown of how the UPS rate increase can affect various aspects of your operations:
- Margins squeeze – A GRI can quickly erode your profit margins, especially if you're operating on thin margins to begin with. When shipping costs rise, you must either absorb them or pass them on to the customer, both of which can affect profitability.
- Budget revisions – You may need to re-evaluate and adjust your annual or quarterly budgets to account for increased shipping costs.
- Supply chain delays – Increased costs might make businesses reconsider their supply chain logistics, potentially leading to delays as new, cost-effective strategies are devised.
- Cash flow – An increase in regular operating expenses like shipping can put a strain on your cash flow, requiring more vigilant financial oversight.
- Erosion of competitive edge – If competitors find more effective ways to mitigate the effects of the GRI, they could gain a pricing advantage over you in the market.
In addition to understanding these rate hikes, delving into the history of USPS can provide a broader perspective on how shipping strategies and costs have evolved over time, influencing today's logistics landscape.
Control and Reduce Your Shipping Costs with Lojistic
Brace yourselves—2024 UPS rate hikes are nearly here. Are you fully prepared?
How Lojistic Can Help
- Impact Analysis: Our in-depth Impact Analysis can provide businesses a clear picture of how these upcoming rate changes will influence their operations over the next year, and offer strategies to offset these imminent hikes. Knowledge empowers decision-making!
- Unified Shipping History: Our complimentary platform enables companies to effortlessly view their consolidated shipping history across various carriers and methods, delivering crucial data for making more informed choices.
- Free Invoice Audit: A Lojistic account automatically scans for billing discrepancies, allowing businesses to claim refunds and cut down on avoidable costs.
- Change Impact Assessment: Companies can leverage our "Compare Mode" to evaluate the financial ramifications of adjustments like rate increases on their overall shipping expenditures
Don't let rate increases catch you off guard. Schedule a 2024 rate increase impact analysis and take control of your shipping expenses.
In a climate of seemingly ever-increasing shipping costs, savvy businesses need to deploy every tool available to maintain control over their costs. Our platform offers real-time analytics and cost-saving automation designed to help you take charge of your shipping costs. Consider it your centralized home for full visibility and command of your shipping spend.
Understanding the implications of these rate hikes is crucial for businesses, and we encourage you to explore our FedEx Rate Increase article as well. Understanding both FedEx and UPS rate adjustments will empower you to make informed decisions to optimize your shipping strategies and manage costs effectively.
VIEW OUR COMPREHENSIVE GUIDE TO THE 2024 UPS & FEDEX GENERAL RATE INCREASE
Sources:
NPR. UPS workers approve 5-year contract, capping contentious negotiations. https://www.npr.org/2023/08/23/1195383661/ups-workers-approve-5-year-contract-capping-contentious-negotiations
Fortune. UPS drivers are rolling in dough as union spikes the ball. https://fortune.com/2023/08/22/ups-drivers-contract-ratified-teamsters/
Freightwaves. UPS hikes 2023 GRI by 6.9%, matching FedEx. https://www.freightwaves.com/news/ups-hikes-2023-gri-by-6-9-matching-fedex
Author
Matt Bohn
Matt Bohn
Director of Parcel Rate Services
Prior to his role at Lojistic, Matt held significant positions in the industry, including his tenure as Senior Pricing Advisor at FedEx. Matt analyzed pricing programs and wrote pricing contracts for some of FedEx’s largest e-commerce and retail shippers. He also managed projects for the FedEx Global Pricing Approval Systems and Strategic Account Executive Inputs.
Matt earned a BS in Computer Engineering and an MBA in Finance from the Joseph M. Katz School of Business at the University of Pittsburgh.