ProShip shares a breakdown of the 2023 GRIs and demand surcharges and how to deal with them
The supply chain is no stranger to change. Each year, companies around the world brace themselves for the whirlwind of peak season, where so many opportunities lie ahead, but so do the challenges. To successfully navigate these difficulties, shippers must be prepared to process, fulfill, and ship orders quickly, accurately, and cost-effectively.
One critical factor that shippers must consider every year are the General Rate Increases (GRIs) imposed by major carriers like the United States Postal Service, UPS, and FedEx. Read on to hear our breakdown of these peak season surcharges as well as an insightful comparison to last year’s GRIs and what may await us in the years to come.
Understanding General Rate Increases (GRIs) and Peak Season/Demand Surcharges
Before diving into the specifics of the 2024 GRIs, let’s set the stage by understanding what the GRIs and peak season surcharges involve. GRIs and peak season surcharges form the beating heart of the shipping industry’s financial calendar.
GRIs are like clockwork—a regular occurrence for most if not all carriers, ushering in a fresh start typically at the beginning of each year. In contrast, peak season surcharges come out of left field, hitting shippers when demand is at its peak. These surcharges are to serve as a safety net for carriers, accounting for the surge in demand that escalates costs in labor, transportation, and supplies.
One thing that has become particularly obvious this year is the transition in language from “peak season surcharge” to “demand surcharge”. Many experts agree that this change is preparing the carriers to apply demand surcharges throughout the year, rather than just during the late holiday “peak season”.
This intricate balance between GRIs and peak season surcharges underscores how carriers adapt to seasonal changes while striving for service excellence.
The 2024 General Rate Increases Peak Season/Demand Surcharges
This year brings some interesting changes in the landscape of GRIs and peak season surcharges. Let's take a look at some of these specific changes and how they can affect your shipping strategy.
USPS: No Surcharges in 2023
Let’s start with the good news – the United States Postal Service (USPS) has made a bold move in announcing the absence of peak season surcharges for the year. In a press release, the United States Postal Service declared that they won't impose extra fees for residential delivery, Saturday delivery, or minimum volumes. Even further, the Postmaster General and CEO Louis DeJoy has confidence that because of the lack of holiday surcharges, the USPS is the most affordable delivery provider in America this holiday season. For brands looking to avoid extra expenses during peak and save on their bottom line, USPS is an attractive delivery option, with no volume limitations.
The USPS continues to promote their USPS Ground Advantage solution, touting it as a simple, reliable, and more affordable way to ship packages in transit times of just two-to-five business days across the continental US. Postmaster General DeJoy continues, “That is why we continue to adapt and execute on strategies to modernize and transform the Postal Service into the high performing organization the nation expects and deserves. I am confident in our ability to handle the peak season surge and deliver exceptional service to the American people during the holidays and beyond.”
USPS shippers consider the lack of surcharges as good news, but the USPS has not yet determined the 2024 General Rate Increases.
FedEx: Demand Surcharges and Special Handling
FedEx, like UPS, calculates demand surcharges based on shipping volume and adds higher surcharges for packages with special handling requirements. This year, FedEx has introduced new surcharges aimed at addressing the heightened shipping volumes experienced during the holiday season, particularly for large shippers. Starting on October 9, enterprise-level customers shipping over 20,000 residential and FedEx Ground Economy packages will encounter the "Demand — Residential Delivery Charge."
This charge varies, with FedEx Ground packages incurring between $1.35 and $6.35, while FedEx Express packages will see charges ranging from $2.40 to $7.40. The specific amount will vary depending on the increase in shipping volume compared to the customer's average residential and FedEx Ground Economy volume from June 5 to July 2, which FedEx refers to as the shipper's "peaking factor." FedEx will calculate the peaking factor weekly from October 9 to December 18, with the corresponding week's charge applied three weeks later.
FedEx has announced its General Rate Increases (GRIs) for 2024 at 5.9%, with the changes set to take effect on January 1, 2024. These adjustments will impact FedEx Express and FedEx Ground services, FedEx Express’ U.S. domestic, U.S. export and U.S. import services, along with FedEx Ground and FedEx Home Delivery. The shipping company added that Ground Economy shipping rates will also increase. For all shippers who use FedEx services, it is essential to review your FedEx shipping agreement. Doing so allows you to assess the exact impact of these changes on your shipping rates.
UPS: Demand Surcharges and Special Handling
The final carrier, UPS, has implemented demand surcharges for high-volume shippers during peak season. The Demand Surcharge is a weekly fee for packages exceeding 105% of the Baseline (the same as FedEx’s peaking factor) weekly average volume for each service level during the Demand Period. The "Baseline" volume is the average weekly volume for the applicable service level in June 2022. It applies to customers exceeding 20,000 combined packages in any week after October 2021, affecting all service levels until further notice. If the average weekly volume from September 4, 2022, through October 2, 2022, is less than 80% of June 2022, it becomes the new Baseline volume. The fees themselves range from $1.35 to $7.50 on certain UPS Ground Residential, Air Residential and SurePost packages for these qualifying customers.
Additionally, UPS has introduced surcharges for additional handling, large package surcharge, and over maximum limits, starting on October 1, 2023 at $6.90, $74.90, and $410.00 per package respectively. Customers that qualify for the additional handling, large package and over maximum limits surcharges have either:
- Been billed for more than 1,000 total packages in any week after February 2020
- Been billed for more than 10 combined large packages or packages requiring additional handling in any week after February 2020
- Signed up for a new UPS account after Dec. 31, 2020
UPS is rolling out these changes a week earlier than FedEx. These changes will not only affect shipping rates but also late payment fees and zip code zone assignments. These changes will be in effect until January 13, 2024.
The national shipper has added a 5.9% GRI for its Ground, Air, and International shipping options, effective December 26, as indicated on its website. Also mentioned was that the list of zip codes for area surcharges will change as well as which zones they apply to. As usual, the impact of these rate increases will depend on shipping profiles and agreements but shippers should anticipate at least a double-digit price increase after including all surcharge increases in their transportation spend.
The largest rate increases will affect Next Day Air and 2nd Day Air shippers across all weight breaks. In contrast, lightweight Ground shippers will experience the most gradual rate growth next year. Significantly, 2nd Day Air and 3 Day Select rates in Zones 5-8 will undergo almost an 8% increase in rates. Importantly, the 2024 rate hike will have a substantial impact on shippers of oversized packages. The surcharges for Additional Handling and Large Packages are set to rise by an average of 19.5%.
This rate adjustment aligns with FedEx’s recent announcement of a similar increase. While it represents a modest increase, it’s worth noting that this year’s increase is slightly smaller than the 6.9% hike experienced in the previous year. UPS conveyed that this rate adjustment is intended to support ongoing expansion and enhancements in capabilities, all while ensuring the high service standards that many expect from UPS. Again, while this percentage is the average shared by UPS, the impact of these increases will depend on your volume and rate scale for shipments.
Demand Surcharges from Regional Carriers
It’s also worth noting that some regional carriers are following suit to the national carriers. They are even starting to apply their own peak season surcharges. OnTrac, the largest regional parcel-delivery carrier, announced its peak holiday surcharges, or rather, demand surcharges, earlier this month. They are following the same strategy as brown and purple and implementing a surcharge program from October 28 to January 12, 2024.
Surcharges range from $1.35/package to $6.40/package depending on the residential volume each week. These surcharges apply to all residential package volumes shipped during any weekly peak period that exceed 105% of a shipper’s average weekly minimum volumes during June 2023. For shippers that didn’t ship any residential volumes prior to June 1, the baseline volume will be based on minimum weekly volumes tendered during September. In addition, a supplemental Additional Handling Demand Surcharge of $6.90 per package will apply, as well as a supplemental Large Package/Oversize Demand Surcharge of $74.90 per package.
It's since been announced that GLS will impose a $1.50 flat peak season surcharge on residential deliveries from October 30 through January 7, 2024. In a message to their customers, they noted that this was provide the high-quality service their customers typically expect from them during peak. LSO has mirrored GLS with a flat Peak Season Surcharge (PSS) of $1.50 on residential deliveries from October 30, 2023 to January 7, 2024 and a GRI, effective January 1, 2024, that will average 5.9% on base rates.
Other carrier companies, like Veho and AxleHire, are following in the footsteps of the USPS and will not have any demand surcharges for 2023. Shipping carriers like APC Logistics, OSM, Pandion, Hailify, and SmartKargo [all part of the ProShip carrier library] have also announced that they will not apply peak demand surcharges. Also notable that DHL eCommerce will not apply peak demand surcharges.
Announcements are still pending – how will the rest of the diverse carrier market respond?
[ProShip will do our best to keep this section updated as your demand surcharge reference this peak season!]
Strategies for Mitigating GRI and Demand Surcharge Impact
With all of this in mind, shippers must adopt strategies to mitigate the impact of both the GRI and these demand surcharges. We’ve put a list together of things to avoid:
"Don't put all your eggs in one basket."
Diversify and rationalize your carrier portfolio: Instead of relying solely on one carrier or a limited carrier mix, consider diversifying your carrier portfolio. Embrace a multi-carrier strategy to leverage alternative carriers, regional carriers, and postal services. Adding variety to your carrier mix offers access to competitive rates and a broader array of shipping services. Balancing your carrier mix is essential and by spreading your shipping volume across different carriers, you can potentially reduce the impact of GRIs and surcharges from a single provider.
"Don't leave money on the table."
Negotiate Carrier Agreements: Engage in proactive negotiations with your carrier partners. Leverage your shipping data and shipping profile insights to negotiate beneficial terms and rates. Carrier partnerships can offer incentives and discounts based on your shipping volume and commitments, helping you offset the impact of rising shipping costs. These partners should want to work with you to retain your business, especially during a time when the carrier market has been flooded with new entrants.
"Don't cry over spilled milk."
Post-Peak Season Evaluation: After the peak season storm, it's essential to look ahead and not focus on the past. What can you improve for next year and beyond? Documenting successes and failures during peak season provides valuable insights for the road ahead. A comprehensive post-mortem includes examining each carrier, service, and surcharge. Armed with this data, you'll be better prepared for next year's contract negotiations. [Looking for a resource to simplify this post-mortem? Here’s your workbook!]
Looking Ahead: Preparing for 2024 and Beyond
Forecasting future rate increases and leveraging technology are the key to staying ahead in the shipping game. The GRIs and these demand surcharges bring both challenges and opportunities. By understanding them, adopting effective strategies, and implementing technology that allows you to efficiently manage them, you can weather the storm and keep your shipping costs in check.
Supply chain technology solutions, such as an advanced multi-carrier shipping software, can enhance supply chain efficiency and provide a competitive edge with automated decision-making around surcharges and rate increases. ProShip multi-carrier shipping software helps shippers implement business rules to account for complex carrier management of both volumes and cost strategies.
Want to learn more about how ProShip’s shipping solution helps customers build stronger than ever revenue streams amidst GRI and demand surcharges? Schedule a demo with our shipping experts today!