UPS and FedEx Discounts: Revenue Based Incentives


May 09, 2011


You'll find revenue-based incentives in most small parcel shipping contracts. UPS uses the term Portfolio Tier Incentives. FedEx refers to them as Earned FedEx Discounts. Basically, they amount to nothing more than a quantity or volume discount. Some shippers don't like revenue-based incentives; yet, managed properly, they can be fairly advantageous.

Carriers like them because in decades past, incentives were either based on zones or weights. In some cases, they were applied to the level of service you had. This was not the ideal situation for carriers. A small parcel shipper could award a carrier only a minor piece of his parcel portfolio and still qualify for UPS or FedEx discounts aimed at the whole portfolio. This "incentive hole" had to be filled, which gave rise to the revenue-based discount.

Various models of the revenue incentive are currently in use, but they're all driven by the same need--if you ship your entire portfolio with us, you get the optimal discounts. As your business expands, so do the discounts. Shrink your business with the carrier or downsize your business and your discounts will likely shrink. UPS and FedEx discounts will typically account for whether you are a large or small parcel shipper.

Revenue-based incentives for FedEx discounts, for example, are usually calculated using annualized gross transportation charges over a rolling 52-week average. They typically include only Ground and Express service levels, but they can include other modalities.  Accessorial and surcharges are usually not included in the rolling average calculation.

UPS uses gross transportation charges, residential surcharges, and delivery area/extended area surcharges. They can include modalities other than small parcel. They often use a rolling 52-week average, but they have also been known to use 13-week rolling averages as well.

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