UPS has released high-level guidance that its 2024 General Rate Increase will mirror FedEx’s announcement at a 5.9% overall increase in rates.
But, as always, the devil is in the details. While we don’t have those details from UPS, how the increases will be allocated across services, weights, and zones will be interesting to see. Historically, UPS led the GRI dance, with FedEx following in cue. In a spin this year, FedEx swept in to lead with a GRI announcement in late August, leaving UPS to follow, and likely mirror.
Over time, surcharges have risen more quickly than freight charges. This explains why in today’s market it is not uncommon for surcharges and accessorials to account for 20% to 30% of a shipper’s total net spend. And with one exception, we don’t yet have 2024 surcharges from UPS. FedEx’s surcharges increased with an overall average of 11.1%, with additional handling & oversize packages averaging a whopping 20.1% across zones. One would probably not go too far astray by assuming UPS would mirror at least the additional handling and oversize / large package surcharges. Nothing is in ink yet, but the precedents are there.
With both carriers enforcing a year-round demand fee, their demand (original peak period) for the upcoming season increased by an average of 5.8% whereas ground residential demand, first tier, rose by 8% - worth mentioning also is the overcomplicated method the carrier use to assess a shipper’s projected fees. UPS first initiated these charges in 2020 due to over-capacity issues it, and frankly every carrier, was having. Mid-year 2022 “peak” surcharges were rebranded as “demand” surcharges. With overall market package volumes falling, one must wonder what these charges will be named, and how they will be justified, going forward.
For those closely experiencing and monitoring the markets, it’s no surprise that the increase is less than the 2023 GRIs. Both companies reaped the benefits of tight capacity throughout the last few years by increasing revenue margins. But falling package volumes has translated to excess capacity, increased competition, and a loosening of pricing pressure on shippers. The simple fact is the market would not support the double-digit increases some were predicting. But, again, the distribution of the increases will matter: 5.9% does not necessarily mean 5.9% for you. If UPS increases the zone 8, 150 lb. rate by 2.9% and the zone 4, 5 lb. rate by 8.9%, the effective increase should be clear to all.
Nor is overcapacity the only issue pushing prices down. The USPS’ new Ground Advantage offering; continued encroachment from regional carriers (still admittedly small, but growing), many of whom are expanding their service areas; and new entrants into the market all combine to keep UPS and FedEx honest, or at least reasonably so.
Once UPS announces details and provides full transparency on the 2024 GRI, we will provide a full, detailed analysis and share how this will impact shippers. Stay tuned!
Tammy Tippins is Director, Professional Services for Intelligent Audit.