“Freight Freak” John B: Small Parcel Shipping Options

What’s the Best Small Parcel Shipping Option for 2019?

Every year we brace for the blow of the annual rate increases from the small parcel companies; increases that usually go into effect toward the end of December and early January. Typically it’s between 5-10% when you factor in the base rates and accessorial/ surcharge increases. Consequently, transportation costs are rising over two times the rate of inflation in 2019. These increases can have a big impact to shipper’s bottom line. Prior to planning any mitigation efforts, shippers must understand the background and make-up of the rate increases.

Below are the highlights for the rate increases of major shipping companies:

USPS 2019 Shipping Rate Changes:

• Priority Mail rates will increase for most packages by an average of 6.2% and Priority Mail Express (as well as Priority Mail Express International) will increase by an average of 3.9%.
• A major change to note is that First Class Package service rates will now be calculated based on their Zone (like Priority Mail). This service will also experience an 11.9% rate increase on average. First Class International rates will increase by an average of 3.9%.
• The USPS is extending dimensional weight (DIM weight) to Priority Mail and Priority Mail Express for packages larger than one cubic foot, with the DIM weight divisor changing to 166.

FedEx rolls out 2019 rate increases:

• FedEx says that rates for FedEx Express are heading up by an average of 4.9% for U.S. domestic, U.S. export, and U.S. import services.
• FedEx Ground and FedEx Home Delivery rates are each going up by an average of 4.9%, with FedEx SmartPost rates also rising. That increase has not been disclosed as of yet but will be predicated by the USPS increase.

UPS 2019 rate increases:

• The rates for UPS® Ground, UPS Air and International services will increase an average net 4.9%.
• Fuel surcharges will apply to Additional Handling, Over Maximum Limits, Signature Required and Adult Signature Required accessorials.
• A processing fee of $2.00 per package will be charged when Package Level Detail (PLD) is not provided to UPS prior to delivery.
• The rates for certain value-added services and other charges will increase.

Shippers should always plan for annual cost increases, but there are ways to mitigate these effects. Shippers should evaluate logistical and carrier optimization opportunities.

Let’s start with carrier selection to optimize costs. The strategy here would be incorporating multiple carrier agreements. The carrier selection, and how many, needs to be carefully analyzed based on your shipping dynamics characteristics and total spend. Carrier Optimization would need to consider potential changes in discounts and potential changes in tracking reliability and transit times. A top tier transportation management system (TMS) can assist in managing and directing this process.

The use of air services can be cut down to a less expensive service, while still meeting the same delivery commitment. For example, utilizing a next day, two- or three-day service to destinations that are within the same Time in Transit (TNT) via ground shipping can be achieved at a lesser cost. This is called zone manipulation, which also can be done with the right TMS.

Ship Location is another potential opportunity to mitigate your freight cost. The U.S. is divided into zones that typically range from 2-8 (7 zones). The lowest number zone you ship to within a given zip area equates to a lower ship cost. The farther out your package travels toward a zone 8 the higher your cost will be. For this reason, shippers should look to optimize (lower) their zone by shipping from locations that are closer to their customers. Shippers should evaluate the ship origin; they may find that they are shipping packages from less-optimal locations. However, this could be due to various reasons as well. Some of those reasons may be legitimate (such as inventory strategies, etc.), but there may be some opportunity to ship from more optimal locations. These strategies include drop- ship, adding additional distribution centers and so forth.

Package dimensions are becoming just as important as the previous since carriers utilize the greater of actual weight versus dimensional. Dimensional weight is determined by calculating a package’s volume (length x width x height) and dividing it by a predetermined dimensional divisor. The published divisor in most cases is 139. Shippers must be diligent to right size their containers. They should be as small and dense as possible, otherwise you are penalized for shipping air; this can also lead to higher cost.

There are also many different surcharges that can be accessed mainly by the duopoly – FDX and UPS. The most common are Fuel, Residential, Address Correction, and Delivery Area Surcharge. Some of the area surcharges can be mitigated by shipping to alternate locations that have a more commercial address versus residential. Otherwise, these extra charges are the basis of negotiations when setting up an agreement with the carriers.

AMS is always reviewing the key freight cost drivers to mitigate the rate increases and overall costs. Look for the new carrier rate agreements in the coming days.

You are welcome to contact John B., the Freight Freak, at [email protected]

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