Given the current landscape facing shippers, it has become increasingly important for shippers to recognize the new normal and a future with “perpetual peak” surcharges. This environment has presented significant challenges for CFOs and logistic managers trying to forecast shipping costs and budgets. It has become virtually impossible to know your company’s true shipping costs when the carriers apply arbitrary new charges and make them immediately effective.

There are several important actions shippers need to take in 2021 to combat these issues. Shippers should begin by conducting a thorough review of their current carrier agreements. If your carrier agreement was written and implemented several years ago, does it reflect the current surge of new charges the carriers are imposing in 2021? How do shippers really know if they have a best-in-class agreement?

As we have emphasized for many years, contract terms and conditions can be much more important than rate discounts in controlling your overall transportation costs. And, while most shippers have many concessions in their agreements that are favorable, do these have the same impact in 2021?

This is particularly true for “peak season” surcharges. While shippers may have contractual concessions for historical peak surcharge timelines, these concessions may have little or no impact on new surcharges or the rapid rise of current tariff increases to charges like additional handling, oversize, residential charges, or increased volumes.

Not only are the carriers applying “peak season” surcharges during the entire year, but they are also trying to apply volume constraints on many shippers. The carriers are now trying to tie additional charges to seasonal volume, but they are also trying to impose capacity limits on the number of packages they will service in the Q4.

Given these new circumstances, shippers should look to their agreements to see if they are protected from these new carrier practices. Many shippers are looking for contract language to extend surcharge incentives to any future new surcharges, but they are looking for ways to negotiate contract caps on surcharges as well as general rate increases (GRIs).

The second but equally important area may be contractual language to protect shippers from being penalized by growing and increasing their revenues and accompanying shipment volumes.

Do you know how much these charges are impacting your shipping expenditures? The first thing you need to do is conduct a thorough data analysis to see exactly where your shipping dollars are going and your overall average cost per shipment. Pull down this data by month and pay particularly close attention to all the new invoice line items. This is especially important for your fourth-quarter shipping as the carriers dramatically increase these costs during what was the “traditional peak season.”

Renegotiating your current agreement will not be an easy task. Typically, the carrier reps will tell you that you might jeopardize your current concessions and may not reduce your overall costs. They will also tell you that their companies are emphasizing margins over growth and do not really want to handle your business, particularly if you have shipments that DIM, require additional handling, are oversized or residential, or your volume is heavily seasonal.

It is ironic to think that the carriers had been “losing” money on your account while providing service for years. Most times, your shipping characteristics have not materially changed, but the carriers have benefited from your internal growth and success over the years.

One of the best ways to counter this argument is to show the carriers all of the YOY additional costs you have incurred to move the exact same shipments. And remember, there were no peak season surcharges before 2017.

In 2017, there was a six-week period where UPS applied a peak season surcharge of $0.27 for residential deliveries and $24 for large packages. Today, those fourth quarter peak surcharges are $1.15-$6.15 for residential and $60 for large packages.

One of the best ways to illustrate the financial increases have been the dramatic rise in accessorial costs. Let’s take additional handling as an example:

Other commonly applied surcharges are Delivery Area Surcharge (DAS) and Residential Delivery Add-On. For DAS, the increase has been around 14% over the last five years, and the increase for the residential fee has been a whopping 26%. Remember, these increases are in addition to the tariff GRI, which happens every January.

Once shippers do the data analysis to quantify how much more they are paying the carriers in 2021, it will be clear to both you and the carrier that shippers have taken a huge hit to their bottom line.

Your data analysis should also help you identify your greatest pain points and the areas where you have taken the greatest increases. This data is a solid basis to begin discussions with your carrier on how to improve your current agreement and to lower costs.

Another way to leverage your incumbent carrier is to consider bringing in a regional carrier for some of your volumes. Typically, regional carriers offer better rates and much lower accessorial fees. Additionally, they can provide you with additional capacity during your peak period where your volumes and revenues dramatically increase, i.e., Q4.

Our recommendation is that any current agreement should give shippers appropriate discounts for all accessorial costs and that these should be capped YOY. Incentives should also be able to be applied to any new or increased surcharges, and there should be language that protects you from any volume or capacity limitations during the Q4.

If your current agreement does not meet these standards and the new realities of 2021 pricing, it may be time to renegotiate or consider going out to bid with other carriers. Good luck!

Tim Sailor is the founder of Navigo Consulting Group which specializes in contract optimization, distribution analytics, and strategic sourcing. Since 1995, Navigo has reduced its clients shipping costs by 20-30%. Tim has been recognized as a Distinguished Logistics Professional by the American Society of Transportation and Logistics, Inc. and has contributed to the transportation industry for over 35 years. You can reach Tim at Tim@NavigoInc.com. 

We have all heard that knowledge is power. This could not be truer when it comes to managing your transportation expense. In today’s world, the carriers have made it difficult for shippers to get the information and data that they need to effectively manage their carrier contracts and expenditures.

When shippers enter into discussions on renewing or replacing their existing carrier agreements, they are usually told by their representatives that they will give the shipper their best possible deal. Well, what does that mean? And, how do you compare it with the other offers on the table?

Many shippers (and consultants) try to back into the “best deals” by employing benchmarking and/or trying to understand the carriers cost to serve models. I believe that a better approach is to use data and analytics to determine which factors increase your carrier expenditures and dilute contract discounts. After studying and evaluating thousands of different shippers’ carrier costs, we have found that five simple analyses can identify and significantly drive down hidden costs.

Understanding the GRI and Accessorials

The biggest culprit in increasing costs is the carriers’ annual General Rate Increase (GRI). FedEx and UPS announce these GRIs by saying that the annual increase will “average” a certain percentage. The biggest problem with this approach is that the increase is not applied equally across services, weights, zones, and residential deliveries. Since shippers typically have fixed discounts off of tariff rates, most shippers don’t know the true impact to their bottom lines.

This year, the carriers announced a 4.9% increase. However, if you are a residential shipper who ships packages weighing from one to 10 pounds, you took a 7.3% increase. Big difference!

It’s necessary to evaluate net rates for each weight and service level using the carrier-provided net rate sheets. Then, to determine the actual dollar cost to your company, apply the new 2016 net rates to your 2015 actual usage. This will show you to a penny what your increase will be, including the minimum shipment charge. We have also found that negotiating a GRI rate cap will also limit these increases and ensure an equal, across-the-board application of the new rates for all weights and services.

In addition to the GRI net rate increase, the carriers also impose annual increases to their accessorial fees. These increases can also be significant. This year, FedEx increased the Additional Handling Fee by $1.50, or 16.7%. Again, apply the new rate to your 2015 historical usage to get the net increase to your organization. By quantifying the additional costs, it’s possible to go back to the carriers and ask for additional discounts to offset the tariff increase.

We take the same approach to calculating all accessorial fees. Most carrier reporting will break out the accessorial fees and show you annual shipment totals and cost for each surcharge.

Other common accessorials are the DAS fee and Residential fee. DAS fees have increased a total of 13.9% over three years, and residential fees have increased 15.3% over three years.

Once the dollar impact of these charges have been quantified, it’s possible to request additional discounts to offset these increases.

The Dreaded DIM

Dimensional charges have been another area where shippers have taken huge increases and have had difficulty calculating how this impacts their costs. The carriers first began in 2013 by lowering the dimensional factor from 194 to 166. By most estimates, this increased oversize shippers’ costs by 18%. Then, last year, the carriers began to apply dimensional pricing to all packages, including those under one cubic foot.

The first thing to review is the weekly electronic shipment invoicing from the carrier. Focus on two columns: Actual/Original Weight and Billed/Rated Weight. If the invoiced weight is higher than the actual weight, you are getting hit with additional dimensional charges.

The next step is to request that your carriers provide you with an electronic billing format that gives you the length, width, and height for each package. When multiplied together you will see the total cubic inches of each package. Apply the carrier dimensional factor, and you will get the true invoiced weight and cost. Compare this to your packaging and you will then see which boxes incur the highest dimensional weight. With this data, you can establish your incremental costs and may be able to negotiate a non-standard dimensional factor that benefits your company’s unique packaging and shipment mix. We have seen many shippers lower their costs by hundreds of thousands of dollars utilizing this approach.

Don’t Ignore the Minimums

Analyzing the minimum shipment charge can also produce significant savings. For those shippers who are impacted by the Ground minimum shipment charge, they saw YOY total increases of 34.2% over the last five years. Despite how high your discounts are, the carriers state that your net rate can’t fall below a ground, zone 2, one pound package — or $6.94. Most shippers don’t realize how many of their packages are impacted by this rule:

For many shippers, the minimum shipment charge negates ground discounts on average for 30-50% of packages. Essentially these shipments are going out as tariff rates. Once you quantify the impact to your shipping costs, you may be able to negotiate a reduction in the minimum shipment fee. And, as we showed earlier, this will produce more savings than negotiating higher discounts.

The best way to determine the impact of the minimum shipment charge is to quantify the total number of shipments where the charged amount was$6.94 from the carrier invoicing.

Apples to Oranges Comparisons

A fourth area where shippers would benefit from robust analytics is when they are trying to compare different carrier proposal and rate sheets. While it might seem impossible to do this “apples to oranges” comparison, it can be done. Again, start by building a comprehensive data and usage sample. Then, do a NET rate comparison on a shipment by shipment basis. This is far more effective in determining costs than by evaluating discount levels.

Next, do the same exercise for all your accessorial fees. Many times, the low cost bidder may not offer the lowest up front rates, but instead offers accessorial concessions that more than make up for it.

Understanding Automation

Finally, one last analysis shippers can improve upon is when they automate rate shopping and Least Cost Routing (LCR) logic. While this is an effective automated way to process shipments at the lowest cost, it is extremely important to analyze the rates you use to compare and route shipments. If the routing logic is based on inaccurate rates or mismatched services, it may end up costing money instead of producing savings. Not only do the right rates need to be uploaded, but the comparison needs to factor in all the accessorial variables. Finally, LCR needs to be updated every January to reflect the GRI impact.

Once you have done these analyses and established your shipping expenditures, you are in a better position to request concessions from the carriers that will impact and lower costs in the areas that impact you most. These savings will go right back to your bottom line.

Tim Sailor is the founder of Navigo Consulting Group, which specializes in contract optimization, distribution analytics, and strategic sourcing. As a 10-year speaker at PARCEL Forum, Tim will be presenting “101: Top 5 Transportation Data Analyses that Get Results.” You can reach Tim at 562.621.0830 or Tim@NavigoInc.com.

FedEx has announced its general rate increase (GRI) for 2019, bumping up its ground, express and home delivery services by an average of 4.9% as of Jan. 7, while also adding some holiday season surcharges and increasing others next year. Rival UPS has yet to announce its 2019 rates.

Between Nov. 19 and Dec. 24, FedEx is adding a $3.20 additional handling surcharge on U.S. express and ground services and international ground services. It is also adding a $150 unauthorized package charge during the same period for U.S. and international ground, and a $27.50 oversized charge on U.S. and international ground and U.S. express services.

FedEx Freight, the company’s less-than-truckload (LTL) division, is increasing its rates an average of 5.9% as of Jan. 7. UPS has advised customers to make other plans for LTL shipments as of last week in the event of a potential Teamsters strike.

The company said FedEx SmartPost, its last-mile service handled by the U.S. Postal Service, will be increasing in 2019 as well, although a figure was not given.

These increases are in addition to an increase in FedEx’s additional handling surcharge on packages weighing more than 70 lbs. from $12 to $20 as of Sept. 3, for U.S. and international ground and express services, and increases in its fuel surcharges as of Sept. 10. More FedEx surcharge increases as of Jan. 7, including for same-day service, are detailed here.

Tim Sailor, owner of Navigo Consulting Group, said the FedEx GRI was in line with past years, but added most shippers don’t understand the impact to their year-over-year costs as the increases vary by service level, weight and zone.

“What has been an increasing trend is for the carriers to implement surcharge increases during the year and not wait for the January GRI,” Sailor said. “2017 was rough as the carriers increased additional handling, added peak season surcharges, and a new third-party surcharge, just to name a few.”