UPS has announced its 2020 General Rate Increase, which means it’s time again for small parcel shippers to look past the headlines and figure out what the increases will mean to their shipping costs in the coming year. The purpose of this analysis is to provide UPS shippers with relevant and actionable information to both understand and reduce the impact of the GRI — something that’s difficult for any shipper to do by simply reading the UPS announcement. Here, we highlight the key takeaways we’ve uncovered in the data that shippers need to know.
This year’s GRI announcement actually includes many positives (that is, if any increase can be considered a “positive”) when compared to other recent GRIs. Overall, many of the increases are conservative in comparison. This is especially true for some of the services and fees that UPS has chosen to emphasize in recent years, such as surcharges related to the SurePost service and larger, heavier, or more awkward packages.
We’ve noted in a few of our past GRI reports that many of the more significant increases seemed to be the result of UPS trying to figure out how to deal with the rise in B2C deliveries that’s resulted from the growth of ecommerce sales. The conservative nature of the increases this year overall may be an indication the carrier is starting to work things out from an operating and cost perspective. Or it could also be the competitive pressure coming from FedEx and Amazon to keep rates low for residential deliveries.
Below, we’ll break down these ideas further as well as identify the other noteworthy findings from the UPS announcement. Each item includes our analysis and illustrations.
Effective December 29, 2019, the published rates for our services will increase. This supports ongoing expansion and capability enhancements as we strive to maintain the high service levels you expect from UPS. Below is an overview of our 2020 Rates.* Package The following changes will become effective December 29, 2019:
Air Freight Effective December 29, 2019, the rates for UPS Air Freight within and between the U.S., Canada and Puerto Rico will increase an average net 4.2%.
UPS Freight The rates for UPS Freight non-contractual less-than-truckload (LTL) shipments rated on the current UPS Freight Tariff 580 will increase an average net 3.9% effective December 29, 2019. This increase applies only to Tariff 580 UPS Freight density-based rates. *The impact of these changes on your shipping costs will vary according to your shipping characteristics and the terms of your UPS agreement.
As we’ve stated, this GRI is generally conservative compared to past years. Many services and surcharges/fees are seeing flat or similar increases, but that’s not the case across the board. As always, it’s the details that matter. Here are the ten most noteworthy observations we found in the data.
In 2019, UPS targeted packages 50 lbs. and over with rate increases upwards of 7%. In 2020, the increases for weights above 50 lbs. are below 5.5% with a slight bump at 90 lbs. UPS changed the rules for additional handling in 2020 and decreased the additional handling weight threshold from 71 lbs. of actual weight to anything above 50 lbs. of actual weight. So, although the rate increase is conservative above 50 lbs., UPS will still drive more revenue thanks to a $24 per package Additional Handling Surcharge that will apply to many more shipments.
During 2019, UPS openly discussed its relationship with the USPS and the future of the SurePost service. Now, UPS’s rate increase implies it will be emphasizing the service in 2020, and the significantly smaller increase for 2020 compared to last year confirms this idea. At the new 1 lb. rate, SurePost is only seeing a 1% increase compared to almost 10% last year. UPS doesn’t exceed the 4.9% “average” increase until the 10 lbs. and over range — which is where both carriers (UPS & USPS) draw the line as the heaviest “desired” package for this service.
Breaking down the Domestic Service increases by zone reveals both conservative and aggressive increases when benchmarked against the 4.9% stated “average.” For instance, Domestic Air Service for Zones 7 & 8 will increase almost 7%. Yet, at the same time, zones 2–4 for some air services are seeing increases below 4.9%. Most shippers, in an effort to optimize their costs, will only use Express Services when the delivery commitment is truly time-bound and the customer is located in a “deep zone.” In other words, shippers are aware of and understand the notion that a Zone 2 package rarely needs to be shipped via Next Day Air when it can be delivered in the same amount of time using a deferred service.
It’s only a few Air Services that represent an exception to the observation that the GRI is conservative in 2020 when comparing the average increase by service, zones, and weights. The increases are on average below 4%, with none being over 6%. In the illustration, note the less than 2% increase for the SurePost service, compared to the 10%+ increase in 2019. Again, this is a clear sign that UPS is working to strengthen the USPS/UPS partnership.
Except for 3-Day Select, every Domestic Service Minimum charge (1 lb. package @ Zone 2) is increasing less than it did in 2019. Keeping in line with the generally conservative increases for Domestic Services, this illustration highlights how most Air minimums were above 6% in 2019 but are lower for 2020 (with some even below 5%).
Exports is one area seeing a generally greater increase in 2020 compared to 2019. Shippers exporting to different areas of the globe — specifically West Europe and Korea — will see the loftiest increases (in the mid-6% range) compared to increases below 5% in 2019. International trade is a hot topic recently, with international shippers uncertain of what the future holds. Other areas, such as China, Hong Kong, S.E. Asia, Oceania, etc., are also facing increases of 6%+ in 2020. UPS import services are receiving a fairly flat increase in 2020.
UPS shippers have become accustomed to expecting aggressive fee and surcharge increases associated with their heftier shipments — thanks to the recent increases in LPS Residential, AHS Weight, and OverMax, among others. The big increases have been the result of all (not just UPS) small parcel carriers trying to discourage customers from putting large and over-sized packages into their networks through punishing surcharges. Interestingly, UPS seems to feel it has increased the AHS and LPS surcharges enough to only need a 4.9% increase in 2020. At the same time, however, UPS (like FedEx) is also dropping the weight threshold for the Additional Handling Surcharge from 71 lbs. to 51 lbs. of actual weight effective 12/29/19, which means the story does not have a happy ending for everyone. In a recent observation of over 2 million packages, we observed a 281% increase in the count of packages that would qualify for AHS weight in 2020 compared to 2019. This will have a costly impact on UPS shippers by adding a new $24 surcharge per package where they were previously exempt from AHS exposure.
The extended DAS increases stand out as being among the most noteworthy of the 2020 GRI. As the chart illustrates, UPS has a clear focus on DAS. Also of note, and consistent with other SurePost-related increases, are the comparatively small SurePost DAS increases. While DAS went up by an average of 23% in 2019, it will only increase by about 5% in 2020.
Most accessorials will see increases of 10% or less in 2020 (the exceptions being some of the aforementioned extended DAS and Additional Handling weight charges). The biggest cost-drivers will continue to be the most expensive surcharges like Large Package and OverMax, so shippers with big and odd-sized shipments should remain diligent. UPS shippers need to be aware of three charges UPS is introducing in 2020.
The financial impact of the annual GRI is always shipper specific, but the information presented here is the important first step for you to identify how the increases affect your company. Thankfully, UPS is implementing a generally conservative GRI compared to recent years. Yet, this doesn’t mean taking the increase seriously and taking immediate action is not necessary. Shippers with packages weighing between 51 and 70 lbs. will be in for a rude awakening if they do not properly plan for new Additional Handling Surcharge exposure. The new $24 charge at those weight-breaks will trump any conservative rate increase felt in other areas.
Now is the time to review the points made in this report and see what changes you can make in your shipping operation to mitigate the increases.
More good news is that many of the costs and surcharges explained in this analysis are negotiable. A lot of them can be reduced or eliminated by negotiating a better service-level agreement with UPS. (The same applies to FedEx, by the way.)
Here is where Transportation Impact can help. We are experts at helping parcel shippers negotiate better agreements with UPS and FedEx, and we have the tools, experience, and data to know exactly what a company like yours should be paying. Better yet, with the GRIs now announced, this is a good time of year to evaluate your carrier mix, since the costs for both UPS and FedEx are changing.
The time to go to market and get your best rates is now. Contact us at firstname.lastname@example.org to learn more.
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