In a completely unsurprising move, UPS announced that their General Rate Increase (GRI) for 2023 will match FedEx’s increase of 6.9%. While the two national parcel giants historically mirror each other, what is surprising about last week’s announcement is the amount. For the past few years, both carriers have raised their rates by an average of 4.9% each year. Last year’s GRI of 5.9% was considered excessive, but begrudgingly understood in the aftermath of the global pandemic. After FedEx announced next year’s historic increase of 6.9%, there was hope that UPS might undercut that amount to gain market share. Unfortunately, that doesn’t seem to be the case.
The extreme rate increase comes as even more of a surprise after UPS released their 2022 Q3 Earnings. It seems the company is compensating for slowing demand by raising rates higher than ever before, and continuing to increase their profits year to year. Unfortunately, while demand is expected to rise next year, the national carriers are under no obligation to lower their published rates in response.
Finally, in another piece of unfortunate news for shippers, UPS also changed their verbiage around Peak Season Surcharges. In a move that will undoubtedly be copied by FedEx, UPS is now labeling them as Demand Surcharges, implying a move away from seasonality. This likely means that shippers can expect more frequent Peak/Demand Surcharges throughout the year, as the carriers see fit.
GRI’s are never fun, but this year’s announcement is especially tough for shippers across the country. Many companies are already struggling with the effects of inflation on their supply chains, and this historic General Rate Increase will continue to have huge impacts deep into next year.
So, if you’re a shipper, what can you do?
Increase Supply Chain Visibility
Remember, the 6.9% increase is only an average, and doesn’t actually reflect the impact of the rate increases on your particular shipping profile. Most likely, your shipping costs will go up even more. On top of that, with the carrier’s moving away from seasonal surcharges, there is a high likelihood your rates will fluctuate throughout the year, based on transportation capacity. The only way to mitigate these factors is by having comprehensive and accurate visibility to every link in your chain.
Negotiate Better Rates
GRI’s are applied across the published carrier rates, but do not necessarily impact your carrier agreements in the same way. After you understand how the specific rate changes will affect your individual transportation costs, ask the carriers to do better. You always have a choice, and ultimately you get what you ask for.
Diversify Your Portfolio
The ultimate leverage in any contract negotiation is the ability to walk away. Being able to utilize multiple carriers gives you power in negotiations, as well as flexibility to deal with supply chain bottlenecks and market changes.
Rate increases happen, and while there’s nothing you can do to avoid that fact, there are things you can do today to make your supply chain better. Having complete visibility, along with the best rates with as many carriers as possible, is the best way to ensure your supply chain can adapt to anything and everything that’s thrown at it.
If you would like to learn more about how the 2023 GRI’s will impact your specific transportation costs, reach out to us today.