Small parcel rates heading up again in 2010

UPS, FedEx push base rate, accessorial increases

Dave Hannon -- Purchasing, 11/24/2009 2:54:27 PM

With the release this week of UPS' 2010 rate increases, the small parcel market picture is shaping up to be a challenging one for shippers and freight buyers in 2010.

Earlier this fall, FedEx Express announced it would increase its base rates on average for 2010 by 5.9%. FedEx will reduce its fuel surcharge calculation by 2% next year. And this week, UPS said it would increase its base rates by 6.9% for 2010 on average and reduce its fuel surcharge by 2%. The rate hike is higher than the 5.9% issued in 2009.

But the average base rate hikes are only one part of small parcel rate structures, says market expert Jerry Hempstead at Hempstead Consulting. And shippers need to closely analyze the entire rate structures including the increases in the accessorial charges (see UPS' accessorial increases here) and compare those to their shipping patterns before selecting the most cost-effective partner.

For example, Hempstead points out that UPS' new fuel index structure takes a shipper from 4% today for ground shipments to 4.5% if fuel stays where it is. And its minimum charge is going up almost 6%. "And there was a $2 increase in the extended area surcharge," he says, adding that roughly 18,000 of the 42,000 zip codes are considered extended area.

At the same time, FedEx increased a host of its accessorial charges that may impact a shipper's decision on which carrier is most cost effective. See FedEx's accessorial increases here.) For example, FedEx issued a new $6 fee to express shipments going to certain zip codes in Hawaii. While for most shippers that may not be a major factor, but if your company ships regularly to those zip codes, it will dramatically impact shipping rates.

If all of this information seems confusing, you're not alone. Parcel shipping tariffs are as intentionally complex as any other pricing models in existence, says Jack Liles, managing director of Atlanta-based Insource Spend Management Group.

"While some higher volume shippers may have multi-year contracts in place that simplify rate increase computations, most will still have trouble determining how surcharges or other accessorial fees will impact their budgets," he says. "The 'average' increases advertised by the carriers are rarely accurate representations of the actual impact on a particular company."

At the end of the day, however, Liles reminds shippers that while parcel pricing may be difficult to digest, it is "entirely negotiable."