22 Sep FedEx 2017 General Rate Increase (GRI) is No “Me Too” Increase
On September 19, FedEx announced their widely expected rate increases for 2017. As is the industry practice from the 2 duopoly competitors, their general rate increases are typically announced in the September time frame. In a break from the traditionally “lock-step” increase amounts, FedEx’s increase is an average of 3.9% for Express package and freight rates for the U.S. U.S. export and U.S. import services are 1% less than UPS rates announced several weeks ago. However, the FedEx Ground and Home increases match the average 4.9% increase announced by UPS.
In the traditional manner, the rate increases focus on the average increase freight rates. However, a good bit of shipper spending may be significantly driven by surcharges and accessorial charges. For 2017, FedEx has increased all surcharges and accessorials an average of approximately 6%. A few common surcharges include a 5.5% increase for residential delivery, a 7.7% increase for address correction, and a 7.4% increase for the oversize surcharge.
One of the most impactful changes is the dimensional divisor reduction from 166 to 139. The dimensional divisor is used to calculate the volumetric or dimensional weight of a shipment. This is determined by multiplying the length x height x width in inches divided by the dimensional divisor. So, for example, a package that has the dimensions of 24” x 18” x 16” would have a dimensional or volumetric weight of 42 lbs. using 166 as the dimensional divisor. However, if the dimensional divisor was 139, the dimensional weight would be 50 lbs. or a 19% greater billable weight.
Of course, the impact of this change to any specific shipper is directly proportional to how many shipments have a greater dimensional weight than actual weight. At Grand Canal Solutions, our customers’ dimensional weight shipments range from 8% to 68% of their total volume. So, this change will be quite significant for a portion of shippers.
The myriad of rate changes from both FedEx and UPS (plus the variation by FedEx on the industry standard dimensional rule) continues to add immense complexity in assessing not only the impact of the rate increase but the comparison of FedEx to UPS. Additional rate increases are to be announced by both carriers in the next couple of months. Read this post on UPS’ GRI announcement in case you missed it.
Understanding how these rate increases impact your spend can either be a daunting analytical task embodying the specific increases that affect your shipments or a wild guess. Supply chain analytics can take the pain out of accurately estimating the impact and eliminate unwanted surprises if you dare to estimate with averages. This enables shippers to model their shipping volume under the proposed rates so that the cost impact accurately reflects the actual shipping profile including shipment weight, destinations, applicable surcharges and fees, and volume based discounts.