2023 has been a challenging year for businesses, marked by an uncertain economy, high fuel costs, and inflation. The rising cost of labor, however, is expected to have the most significant impact. Major carriers like FedEx and UPS have faced labor disputes with their unions, which have demanded higher pay for workers. As a result, both carriers are looking to pass these higher labor costs on to shippers.
But what does this mean for your business in 2024? And how can you protect your bottom line as much as possible with another jump in shipping rates just around the corner? Let's delve deeper into these issues.
Understanding the Situation
The shipping volume has been dropping, and the market is shifting from a carriers’ market to a shippers’ market. This means that while parcel carriers will attempt to push more of their rising labor and operation costs onto customers, they must also tread carefully to ensure parcel volumes don’t continue to drop.
This shift in the market dynamics presents both challenges and opportunities for shippers. On one hand, the rising costs could squeeze their margins. On the other hand, the shift towards a shippers' market could give them more leverage in negotiating rates with carriers.
Predicting the GRI
Predicting where the General Rate Increase (GRI) will land is always tricky. Several factors could influence the final rate, including shipping volumes and labor disputes.
Shipping volumes are down, and carriers have more capacity than in the last few years. This puts pressure on them to keep rates at a price point that doesn’t further reduce volumes. However, labor disputes for both FedEx and UPS have been challenging this year, and labor costs are increasing for both carriers.
Our prediction? Carriers will raise the base GRI by 6.9% again this year, but the rate could climb higher due to labor disputes. This prediction is based on the current market dynamics and the historical trend of rate increases.
The Impact of Accessorial Fees
The impact of the GRI is more complex than the base rate increase indicates. In addition to ground or air rates increasing, carriers will be raising accessorial and additional handling fees – possibly much higher than the base GRI rate.
These fees can significantly impact the total cost of shipping, especially for businesses that frequently ship large, bulky, or odd-shaped items. Our prediction? Expect 10%+ rate hikes on accessorial fees and additional handling charges.
The Shift in Peak Season Rates
The Peak Season Surcharge is a temporary increase applied to base shipping rates that are typically put into place during the holiday season. But, since COVID-19, the line between the GRI and Peak Season Surcharges has blurred.
In addition, retailers are blurring the lines of what constitutes the holiday shopping season. Rather than Black Friday starting the day after Thanksgiving, the entire month of November is becoming the “black month,” as many retailers offer promotions earlier and earlier.
Our prediction? The Peak Season Surcharge could start as early as September and extend through February. This could significantly increase the cost of shipping during these months.
Protect Your Bottom Line
Rate increases are coming, and they will threaten your bottom line, but there is a lot you can do to limit or eliminate the impact.
- Renegotiate Your Contract: Whether you’ve renegotiated your contract in the last year, or it’s been several years, the market has flipped from being a carrier market to a shippers’ market. Now is the time to take advantage of the leverage you have. Carriers are being more generous with discounts as they currently have extra capacity and want more volume from shippers.
- Assess Your Shipping Operations: Optimizing your packages is vital to keeping shipping costs as low as possible. Model how repackaging, resizing, or splitting purchases into smaller, multiple shipments can impact your costs and optimize to reduce costs. In addition, model your warehouse footprint to understand if your distribution network is fully optimized to help lower costs, especially during peak season.
- Be Open to Alternative Shipping and Delivery Options: Consider different delivery methods or shipping options, such as minimizing weekend deliveries and eliminating the need for signatures. While these alternatives may not work for every business, they are worth considering.
Delve into Your Data
Your historical shipping data is the best way to understand what you’re currently paying for different delivery services and package types. You can then use these insights to model what you might end up paying under this year’s GRI rate increase.
Having data is also essential to any renegotiation strategy. You can bet your carrier will know their data – and you need equal insight into what fees and surcharges cost you the most, and where discounts can have the biggest impact on your bottom line.
In conclusion, the shipping landscape in 2024 will be marked by higher rates and increased labor costs. However, by understanding the situation, making informed predictions, considering the impact of additional fees, and leveraging your data, you can navigate these changes and protect your bottom line.
Historical Rate Increases