It’s that time of year again: rate change. As night follows day, you can confidently predict that UPS and FedEx will increase their rates after the holiday rush. This year, new UPS rates will take effect on December 26, 2016 and FedEx rates will change on January 2, 2017. USPS rate changes will take effect on January 22, 2017. For eCommerce vendors, some of the changes, like dimensional weight rate changes, are expected to have a significant impact.
USPS and regional carriers such as LSO (who have higher dimensional weight factors) can expect to see more volume in the years to come if UPS and FedEx rate increases continue on the same trend.
“As the global carriers systematically increase the impact of volumetric pricing (DIM), shippers are going to need additional flexibility though a multi-carrier vs just a single carrier approach and the technology to optimize their package sizing when shipping to maintain their bottom lines. The combination of Pierbridge and regional carriers such as LSO can minimize the impacts of these sweeping changes on overall shipping costs,” said Rick Jones, CEO of LSO.
Summary of UPS Rate Changes
UPS announced its intention to raise its rates to help offset capital investments it has made in support of the fast-growing eCommerce market. The changes are as follows:
> The following services will increase by an average 4.9%
- Domestic Ground
- Domestic Air and International
- Air Freight rates within and between the U.S., Canada, and Puerto Rico
- UPS Freight (9/19/16)
> Handling fees for oversize Air and International packages will increase from $10.50 to $10.85. UPS has reduced the oversize limit to 48 inches on the longest side, which had previously been 60 inches. This fee will also apply to UPS SurePost shipments.
> Effective January 8, 2017, UPS will change the dimensional weight calculation for packages with measurements greater than 1,728 cubic inches and shipped via Domestic and UPS Standard from Canada import services. The dimensional weight factor will be reduced from 166 to 139 to determine the dimensional weight. Domestic services packages measuring less than or equal to 1,728 cubic inches will continue to use the current dimensional weight factor of 166 divisor to calculate dimensional weight. UPS Standard from Canada import shipments will use a 139 divisor to calculate dimensional weight.
For detail on UPS rate changes, go to: http://rates.ups.com/
Summary of FedEx Rate Changes
FedEx announced its rate changes after UPS’s announcement, and not surprisingly, the changes were similar in scope.
> Express rates will increase 3.9% for Domestic, International, and Import services. FedEx rate increases for these services lagged UPS rate increases (4.9%) for similar services.
> Like UPS, FedEx Ground, Home Delivery, and Freight rates will increase by an average of 4.9%.
> Express and Ground fuel surcharges will be adjusted on a weekly, instead of monthly, basis as of February 7, 2017.
> Rates based on shipment size will increase by 19%.
- Dimensional weight factor for Express and Domestic Ground will be reduced from 166 to 139. The calculation will now be L x W x H / 139, with the result rounded up.
- The surcharge for FedEx Freight Extreme Length will increase from $85 to $150. The surcharge is incurred for shipments with dimensions of 12 feet, reduced from the previous measurement of 15 feet.
- Like UPS, FedEx made a similar package size change for its additional handling fee back on June 1, 2016, though no change to its price of $10.50 has been announced at this time.
For detail on FedEx rate changes, go to: http://www.fedex.com/us/shipping-rates/
Summary of USPS Rate Changes
USPS rate changes will not be as steep as UPS or FedEx:
> International rates will not change at all.
> Domestic rates like Priority mail will increase on average 3.9%
> USPS only charges dimensional weight rates when a package is larger than a cubic foot (12" x 12" x 12"), and the package is going to zones 5-8. The USPS dimensional weight factor is 194 (as compared with UPS and FedEx dimensional weight factor of 139). In some cases, a domestic Priority Mail shipment within zones 1-4 only, and weighing less than 20 pounds, may be subject to USPS Balloon Rate pricing. Packages whose [Length (longest side)] + [(2xW)+(2xH)] is between 84" and 108" and meeting the foregoing conditions will pay postage at the 20-pound rate rather than actual.
For detail on USPS rate changes, go to: http://blog.stamps.com/2016/10/21/usps-announces-postage-rate-increase-starts-january-22-2017/
Dimensional Weight Rating Now a Huge Factor
UPS and FedEx rate increases in the range of 3-5% over the past 10 years have far outpaced the rate of inflation. But the aspect of the 2017 rate change that is most likely to have the biggest impact on shippers is the change in dimensional weight factors. Dimensional weight is calculated by multiplying the length, width, and height of the package and then dividing by a dimensional factor. If the dimensional weight is higher than the actual weight of the package, then the dimensional weight is used to determine the shipping charge. Fuel surcharges will apply to any dimensional weight rate as well.
Over the last 6 years, the factor will have fallen from 194 to 139 (166 this year) as both UPS and FedEx are seeking to achieve more density within their vehicles. This means that shippers will more likely incur an unexpected dimensional rate charge in their carrier invoices if they are not mindful of how they package their goods and process them for shipment.
FedEx CEO Fred Smith has criticized the wasteful packaging habits of eCommerce merchants, saying “we were getting lots of packages that were one or two cubic feet and inside was a six-ounce stuffed toy, and that comes from the way eCommerce is processed there”.
The change in dimensional weight factors will especially impact smaller eCommerce merchants who don’t have the volume to negotiate better factors. Their shipping costs could increase significantly in the next year, making it more difficult for them to compete against larger eCommerce competitors like Amazon.
To offset the potential cost impact, shippers will need to invest in software to calculate dimensional weight rates more accurately, or in hardware such as dimensional weight scales to measure containers at point of shipping. Comparing rates and services in the context of container size will become more essential.