The parcel delivery market may be swinging in shippers' favor, but UPS and FedEx customers will still have to contend with rate increases for 2024.
The delivery giants announced a 5.9% average rate increase on their various shipping services that will take effect on Dec. 26 for UPS and Jan. 1 for FedEx. It's a smaller increase than the 6.9% bump both unveiled for 2023 as they contend with declining demand.
FedEx and UPS have since released the full details of these rate increases and accompanying surcharges. Parcel spend experts say the rivals unsurprisingly mirror each other's changes even beyond the 5.9% average.
Read on to find out what shipment types will see the largest rate increases, what it suggests about the carriers' evolving strategies and how shippers can minimize the impact of higher delivery costs.
Increases target expedited, long-distance deliveries
The 5.9% rate hike at FedEx and UPS is only an average. The actual increases shippers will encounter vary depending on each delivery's shipping characteristics. These include:
- Distance traveled: Shipments moved over longer distances, which the carriers measure by "zones", will encounter sharper rate increases than those being delivered to a closer location. For FedEx, ground and air deliveries in zones 2-4 will see an average increase of 5.91%, while those in zones 5-8 will see a 6.39% average increase, according to an analysis from LJM Group. UPS has similar discrepancies.
- Package weight: Heavier packages will generally see greater shipping rate increases compared to lightweight parcels at both FedEx and UPS. For example, shipments weighing 1 to 5 pounds will see a rate increase of 5.5% for commercial ground services at both FedEx and UPS, according to a Shipware analysis. But packages weighing 11 pounds or more will see rates jump by at least 6%.
- Service used: Packages delivered by faster shipping services will generally see price increases above the 5.9% average. A Shipware analysis shows rates for minimum charges that FedEx and UPS levy for their air cargo services versus slower ground transportation offerings.
Overnight services see the highest rate hikes
|FedEx service||Increase to minimum charge|
|Next Day Air||7.91%|
|Next Day Air Saver||7.51%|
|3 Day Select||4.52%|
Source: Shipware analysis. Note: UPS’ increases take effect Dec. 26, 2023. FedEx’s increases take effect Jan. 1, 2024.
Shippers should also consider any surcharges that apply to their shipments, which aren't factored into the carriers' base rates but will also see increases for 2024. Added fees that FedEx and UPS levy include charges for large and oversized goods, packages that require additional handling and deliveries to remote locations.
AFS Logistics Chief Analytics Officer Mingshu Bates said UPS is adjusting which ZIP codes it considers rural or remote areas of the U.S., which comes with an added delivery fee for shippers.
How UPS classifies these ZIP codes has a marked impact on a package's shipping cost. Delivery area surcharges for 2024 will range between $3.95 and $7.70, while remote area surcharges will cost $14.15 in all states except for Alaska.
"If you happen to shift to one of those fortunate or unfortunate ZIP codes, you're going to see a huge difference," Bates said.
FedEx and UPS adjust to competition
The variances within rate hikes indicate what shipment types FedEx and UPS face greater competition for.
There are plenty of alternative carriers serving specific regions that shippers can use for shorter-distance deliveries, and these companies continue to expand their coverage areas and capacity.
"I think that speaks to them feeling a little bit more of a competition from regional carriers than they're willing to admit," said Paul Yaussy, a senior consultant of professional services at Shipware.
FedEx and UPS also have competition for lightweight packages that don't require expedited delivery, even at longer distances. Amazon Shipping is touting lower shipping prices than what shippers can expect from the parcel delivery giants.
"We have some of our clients getting some offers from Amazon Shipping, and the offers are pretty aggressive," Yaussy said. "We've seen that their service guide is very, very similar to those that FedEx and UPS have."
Competition is less heated for longer-distance and heavier shipments using expedited services, allowing FedEx and UPS to impose higher rate increases without dissuading too many shippers. These shipments are also more expensive for carriers pushing to reduce operating costs and increase efficiencies.
How shippers can reduce rate hikes' sting
Despite the rate hikes, shippers are in a prime position to negotiate better contract terms as delivery demand remains soft. Parcel carriers are offering up more robust discounts to secure volume, benefiting customers like Macy's and Rent the Runway.
A key for shippers in negotiations is to make sure they understand their biggest strengths as a customer that could lead to reduced charges, said Nicholas Fanelli, managing director of Shippingwise.
"Do you have multiple packages shipping from the origin to the same destination on the same day? In that case, you have a strong argument to be negotiating certain surcharges, like the fuel surcharge or residential surcharge, because they're already going there,” Fanelli said.
Companies should also consider what they can adjust internally to avoid unnecessary shipping costs, experts told Supply Chain Dive.
This could include exploring ways to put products in less bulky packaging or splitting a large item into two individual shipments to avoid surcharges. Shippers may also opt for less expensive ground transportation for more time-sensitive deliveries if the destination is close enough to the shipment's origin.
Carriers welcome these types of adjustments from customers, as it makes their volume easier to handle, said Kevin Miller, VP of data insights at logistics software provider Sifted.
“[Carriers] can give you suggestions as well on how to improve your network to help them be more efficient," Miller said. "By doing so, it will save both companies money."
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