By Ken Wood, President of LJM Consultants – Freight Auditing & Consulting
Ken Wood (photo) is a nationally renowned expert on parcel rate negotiation and invoice auditing. Over his career, he has helped several hundred companies reduce their parcel shipping costs. Ken is the President and Owner of LJM Consultants – Freight Auditing & Consulting.
Like clockwork, both major parcel carriers, UPS and FedEx, have implemented their yearly parcel rate increase: Air and International Services increased an average net 4.5% through a combination of a 6.5% increase in rates and a two percentage point reduction in the Air and International fuel surcharge. Ground Services increased an average net 4.9% through a combination of a 5.9% increase in rates and a one percentage point reduction in the Ground fuel surcharge. If you aren’t quite sure what the overall impact will be on your transportation spend, you are not alone and this article will help.
The operative word in the carrier rate increase announcement is average. It is important to realize that the announced rate increase is based on just that, an “overall average,” calculated by rating individual shipments weighing 1lb through 150 lbs to every cell in every zone. When you take a closer look at the carriers’ rate tables, you get a more realistic and accurate view of the actual increase and how the increase affects your particular business based on your company’s unique shipping profile. If you are the typical small parcel shipper, the majority of your packages weigh less than 30 lbs. Unfortunately this is where the highest carrier rate increases are. The increases on lighter weight shipments are considerably higher than the increases on heavier weight. For example, a 3 lb ground package going to zone 3 increased by 8.94% while a 74 lb package going to zone 3 increased by 1.69%. Shipments weighing between 1lb and 10 lbs increased on average 8% while shipments weighing between 71 lbs and 150 lbs increased on average 4.7%. Your actual increase will be closer to 7.5% before “Surcharges and Accessorial Fees.” The following chart illustrates examples of the average percentage increases for Ground Packages by weight breaks as well as the increases for Air Services. To see a wider sampling of the increases by weight and zone (please click here) .
What About the 2013 “Accessorial Fees” and Surcharges?
Package surcharges and accessorial fees can add as much as 30% or more to the cost of shipping a package. These additional fees include address corrections, residential surcharges, dimensional weight charges and delivery area surcharges (to name a few). The 2013 surcharge for an “Address Correction” increased to $12, up 9.1%; the “Residential” surcharge for ground shipments increased to $2.80, up 9.8%; and the Declared Value (insurance) surcharge is now $.85 per $100 with a minimum charge of $2.55, up 6.25%. These surcharges coupled with the base rate have the potential to increase actual parcel shipping costs by more than 10% over last year.
The following is a listing of the 2013 Accessorial Fees and Surcharge increases: They can take a large bite out of your profitability if not properly managed.
What Can You Do About It?
Two things that your organization can do immediately to help offset these increases are to:
- Perform a detailed audit your weekly carrier invoices. This is more than just a spot check. Auditing your invoices for errors, when done with professional software, has proven time and time again to be worthwhile. The average bill is 1%-6% higher than it should be due to errors. Most auditing firms perform this service on a gain-sharing basis with no upfront fee.
- Renegotiate your UPS/FedEx agreements. Depending on when you last negotiated, you may be able to reduce your annual parcel spend by as much as 10%-25%.
If you are interested in finding out how much opportunity you have to reduce your parcel spend in 2013, call (513) 533-0139 to get a no-obligation (truly), complimentary analysis of your parcel bills.
More Helpful Links:
http://www.myLJM.com – LJM Website
http://www.myLJM.com/blog/ – LJM Blog
http://www.rates.ups.com/index.html – 2013 UPS Rate Change Information
http://www.fedex.com/us/2013rates/rate-changes.html– 2013 FedEx Rate Change Information
* Increases mentioned are for UPS. FedEx increases are similar.