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SUPPLY CHAIN SUCCESS BY SAM SIMPSON

FedEx and UPS Go Their Separate Ways n September 20, FedEx announced its 2017 general rate increase (GRI). UPS announced its 2017 GRI earlier, on September 1. FedEx announced a 4.9% average increase for Ground and a 3.9% increase for US Domestic Express, Export, and Import services. UPS announced an average increase of 4.9% for Ground and 4.9% for US Domestic Air services. The FedEx GRI will take effect on January 2, 2017, while the UPS GRI will take effect one week earlier, on December 26, 2016. CARRIER

AIR INCREASE

UPS

GROUND INCREASE 4.9%

FEDEX

4.9%

3.9%

4.9%

Table 1: Announced Rates

THE RATES Since these GRIs are described by the carriers as an average net, the actual impact to certain service level rates can vary greatly. Both UPS and FedEx announced a 4.9% average increase for their Ground service; however, the 2017 Ground rates will be different between the two carriers, which is a first in many years. The US domestic air increase for FedEx (3.9%) is one percent less than the UPS Air increase (4.9%). While the average increase for FedEx is lower, it is very important to consider how these averages are calculated and which services will take the greatest increase. The UPS increase is broken out by service level and weight breaks in Table 2 10

WEIGHT BREAK GROUND 5.4% 1-5 LBS.

NEXT DAY 4.8%

NEXT SAVER 4.7%

2ND DAY 6.2%

2ND DAY AM 5.8%

3 DAY 6.4%

6-10 LBS.

5.3%

4.8%

4.7%

6.0%

5.5%

6.1%

11-20 LBS.

5.1%

4.7%

4.7%

5.9%

5.4%

5.8%

1-150 LBS.

4.6%

4.7%

4.7%

5.9%

5.3%

5.8%

ZONE 2, 1LB.

5.5%

5.2%

4.7%

6.2%

5.8%

7.0%

Table 2: UPS 2017 Transportation Increase

WEIGHT BREAK GROUND 4.9% 1-5 LBS.

NEXT DAY 3.0%

NEXT SAVER 3.4%

2ND DAY 5.9%

2ND DAY AM 4.8%

3 DAY 3.8%

6-10 LBS.

5.4%

2.7%

3.5%

5.9%

5.0%

3.8%

11-20 LBS.

5.3%

3.4%

4.5%

5.9%

5.2%

3.8%

1-150 LBS.

4.6%

3.2%

4.0%

5.7%

4.9%

3.6%

ZONE 2, 1LB.

4.5%

1.9%

3.2%

5.2%

2.1%

0.0%

Table 3: FedEx 2017 Transportation Increase

to give a better idea where the largest increases will take place. On average, Next Day Air and Next Day Air Saver will take less than the announced increases at 4.7%, while the Ground rates are slightly higher than 4.9%. Meanwhile, 2-Day and 3-Day rates will increase over six percent. Most shippers will utilize the less expensive Air services, thereby causing a greater impact than anticipated by the GRI announcement. It is also noteworthy that the 3-Day, Zone 2, one-pound rate, upon which the minimum charge is based, went up seven percent. As always, minimums have a disproportionate impact on total cost relative to list rates for most shippers. Table 3 shows how FedEx will follow UPS in the pattern of increases, but not in the amounts. Next Day Air will take the lowest average increase at 3.2%. The largest increase will take place on 2-Day Air, with an overall 5.7% increase. However, 3-Day Air averages are misleading, and the minimum increase of 0% is a

NOVEMBER-DECEMBER 2016 | www.PARCELindustry.com

good indicator of why. Zones 2, 3, and 4 will increase 0% because shippers are aware that Ground service can typically get packages to those zones in two to three days, which means less demand for 3-Day service to those zones. Zones 5 and 6 will increase 7.2%, from one to 50 pounds, and zones 7 and 8 will go up 6.2% for the same weight range. This demonstrates how a 3.9% average increase can result in a much higher realized increase. ADDITIONAL CHARGES Both carriers will be implementing changes to their accessorials, surcharges, and rating logic. FedEx, for example, will be changing its Express and Ground DIM divisor from 166 to 139 for all domestic shipments. UPS will be doing the same, except for those domestic air and ground parcels less than one cubic foot. It is apparent this will equate to a cost increase for shippers without a negotiated DIM divisor.


PARCEL November/December 2016