What Am I Paying For?

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With a new year comes new things: Plans to get healthy, start a new career, take a dream vacation, and if you’re in the shipping industry, a General Rate Increase (GRI).

Shipping rates have climbed steadily over the last decade and there does not appear to be an end in sight for future rate increases. Retail Shipping Associates reported in a recent issue of RS News that shipping via air service has risen by a total of 62.8% for FedEx and 66.1% for UPS, respectively. Ground service for both carriers has risen 54.9% in the last 10 years.

GRI will happen despite any economic growth, lower fuel prices (like we saw this past holiday season), or how well the market is doing. GRI is determined by one thing: Volume.

This year’s GRI, for example, was 4.9%. UPS and FedEx study where their packages are going and how frequently they’re going to a given location. Some areas will see their shipping cost rise by 8% because they’re in a high-volume area. In contrast, some will see a small change in price because they’re in a low-volume area. Others will see no change in price.

The carriers describe a GRI in terms of an “average” or “percentage.” By raising rates in heavily trafficked zones and not raising them at all (or not by much) in low trafficked zones, UPS and FedEx can say rates are only increasing by an average of 4.9%. That sounds better than 8%; especially to the paying customer at the counter.

Keep in mind the rate increase is solely based on transportation; it does not include surcharges the carriers use. Below is a list of charges that make up the overall shipping price:

  • Fuel Surcharge – Carriers will charge a small percentage to offset the cost of fuel to move packages.
  • Declared Value – Most commonly referred to as insurance. UPS and FedEx cover the first $100. The rest will cost about $3 for each $100 of coverage after that.
  • Dimensional Weight – Also known as Volumetric Weight. This is a calculation used by the carriers to determine how much weight a package will hold. You multiply the length x width x height and divide by 166 (194 for USPS) for domestic shipments and a divisional of 194 for all international shipments. Shipping price is based on whichever is higher: the actual weight of the package or the dimensional weight.
  • Address Correction – If you need to change the delivery address expect to pay nearly $15 depending on the carrier.
  • Residential Fee – It costs more to deliver to residential addresses than businesses. Businesses are typically easier to find, have someone there to receive the package, are located around other businesses where packages are delivered, more secure, etc.
  • Signature Fee – To ensure your package gets delivered, the carrier will charge anywhere from $3.00-6.00 depending on the carrier and the type of signature you choose.
  • Oversize Fee – If your package weighs more than 150 lbs or is greater than 130″ (length + girth), you will be assessed an oversize fee. Carriers are charging nearly $75 for each package that you send oversized.
  • Delivery Area Surcharge – This fee occurs when the delivery destination is in a remote, difficult to reach, or sparsely populated area. Cost varies depending on location.
  • Additional Handling – Packages not incased in cardboard or that do not lie flat (i.e. shipping tubes) are accessed this fee. Large packages that require two people or extra equipment like a hand cart or forklift to move fall under this area as well.GRI will likely never go away.

As you can see, a lot goes into shipping a package. Factor all these prices into the picture and then add the fact that every person who handles the package must get paid, you start to see why it can cost so much to ship.

The best we can hope for is a low average increase in price. What we can do is better educate shippers on how to utilize every inch of their package to get the most bang for their buck. Can the box be cut down? Can items be combined into one box? Can you ship to the person’s place of business instead of their residence that’s in a DAS?

Those are a handful of ways to navigate higher shipping costs. It becomes an annual New Years tradition for the carriers and shippers alike. The carriers raise rates and shippers come up with creative ways to keep their customers’ cost low.

Your local pack and ship store exists for this very purpose. They will happily help you get your items packed properly and shipped at a fair rate. As far as building your dream home, taking a grand vacation, or losing weight in the new year you’re on your own . . . unless it’s dimensional weight you want to lose.

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