UPS’ 2024 Rate Adjustments: A Remarkable Resemblance to FedEx’s Approach

UPS‘ 2024 Rate Changes Look Similar to FedEx‘s

According to a recent analysis by consultancy Shipware LLC, UPS‘ 2024 rate adjustments are strikingly similar to those already published by rival company FedEx Corp. This news may come as a disappointment to those who anticipated that UPS‘ rates would be influenced by the significant labor cost increases resulting from its contract with the Teamsters union. The carriers’ rate increases for ground commercial shipments are reportedly identical across the board.

Comparable Rate Increases

Shipware’s analysis revealed that the minimum charge for a ground commercial shipment, which applies to all shippers irrespective of any rate discounts they negotiate, is set at $10.70 per shipment for both carriers. UPS‘ minimum charge increases range from 4.52% for its three-day delivery service to 7.91% for its next-day air service. The consultancy also found that 24 out of 40 delivery surcharges identified were identical between the two carriers, with only four surcharges differing by $5 or more per shipment.

Shorter-haul traffic, which refers to shipments of 600 miles or less, will also experience similar rate increases from both carriers. These rates will be at or below the 5.9% general rate increases (GRIs) that were announced by both companies. The lower rates for shorter-haul moves can be attributed to heightened competition from regional delivery carriers and Amazon’s revamped delivery operations.

However, for longer-haul shipments moving under UPS‘ second-day air and three-day services, rates could increase by as much as 8%, according to Shipware’s analysis. In general, most rates across different service types, weights, and distances will either meet or exceed the 5.9% GRI.

Oligopolistic Pricing Behavior

Paul Yaussy, the executive at Shipware who prepared the analysis, emphasized the continued “oligopolistic” pricing behavior exhibited by both FedEx and UPS. In his assessment, there are few substantial differences between the common services and surcharges offered by the two carriers.

The five-year contract that UPS entered into with the Teamsters union stipulates rate increases of 9% to 10% for its first year, marking the most substantial year-over-year hike during the contract’s duration. Some speculated that UPS would implement higher-than-normal rate increases in 2024 to offset increased operating costs resulting from the contract. However, Shipware’s analysis suggests that UPS may have been willing to sacrifice some yield on 2024 business in order to regain parcels that were diverted to competitors during the contract negotiations.

Mixed Meanings

The effect of general rate increases (GRIs), including those with detailed breakdowns, is somewhat ambiguous. Although they apply to noncontractual traffic that represents only a fraction of the overall parcel business, GRIs serve as benchmarks for negotiations between shippers and carriers.

Yaussy advised shippers to pay close attention to the costly surcharges imposed by both UPS and FedEx. According to industry data, the combined cost of surcharges can constitute up to 40% of a shipper’s total annual parcel spend. For instance, at UPS, only two of the 37 surcharges listed by Shipware will increase by less than the GRI.

Shippers of large packages that require additional handling will face surcharge increases ranging from 18% to 21%, depending on the service. Therefore, to avoid potentially significant rate increases, shippers must negotiate with carriers to lower or eliminate these surcharges.

Hidden Cost Increases

Yaussy also warned UPS shippers to be vigilant about “hidden cost increases” resulting from the carrier’s announcement of changes to the number of ZIP codes that could be subject to delivery surcharges. Additionally, any reduction in the number of ZIP codes aligned to Zones 2 and 3 could lead to more deliveries falling into the Zone 3 category, thereby resulting in higher rates.

While it remains to be seen whether FedEx is making similar moves, UPS traders will not have visibility into the impact of such changes until the 2024 rates take effect. According to Yaussy, such alterations have the potential to be a sneaky way for UPS to increase yield.

Conclusion

The recent analysis by Shipware LLC suggests that UPS‘ 2024 rate adjustments closely resemble those of its rival FedEx. Shippers should carefully evaluate the surcharges imposed by both carriers, as these costs can significantly impact their annual parcel expenses. By negotiating with carriers and staying informed about potential hidden cost increases, shippers have a better chance of minimizing rate hikes and optimizing their parcel spend.