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2016 Parcel GRI May be the Largest in Recent Years

Posted By Joe Wilkinson, enVista, Thursday, November 19, 2015

On September 15 FedEx announced its 2016 general rate increase (GRI).  UPS followed suit exactly one month later. Unlike previous years, we have a number of changes that are being implemented on November 2, pre-GRI, and additional changes that will take effect with the planned GRIs (January 4th, 2016 for FedEx, December 28th, 2015 for UPS).

 

For the second year in a row, we are seeing more than just increases to list rate schedules and accessorials/surcharges.  Like the changes to Ground DIM logic implemented with the 2015 GRI, broader changes are being made to the infrastructural rating logic of the carriers’ Service Guides.

 

The Rates

UPS announced an average increase of 4.9% for Ground, and 5.2% for domestic US Air services.  FedEx announced a 4.9% average increase for both Ground and Express services.  Predictably, these announced increases tell, at best, part of the story.

With exceptions of Next Day AM / First Overnight, 3-Day / Express Saver, and Ground Residential / Home Delivery 70+ lbs. list rates have become homogenous.  UPS has merged their Standard and Daily list rates into a single rate base which, with the exceptions noted above, aligns with FedEx’s Standard list rates [1].  This continues a multi-year trend toward rate homogeneity. 

 

If we look at the transportation charge increases in more detail, we see that low-weight packages (where the bulk of the package volume lies) increase to a greater degree than do higher-weight packages.  This is also largely true across the air services, particularly in the next day services.  Surprisingly the zone 2, 1 lb. packages, the basis for most minimum package charges, generally increase to a lesser degree than do the majority on the other weights and zones.  However, the increases here are still higher than the announced increases by and large.

 

 

Third Party Charges

The most interesting, and potentially with the most long-term impact to shippers, is a 2.5% surcharge on total net package charges for third party (3P) shipments.  For shippers with large drop ship or 3PL volumes, this will be a non-trivial change in UPS’ pricing logic.  While 2.5% may seem like a small number, we must bear in mind that the carriers have a history of introducing new charges at low cost, and then increasing them dramatically in future years.  Also, we face a multiplier effect here, where list rates are increasing by X%.  But, because we have multiple stacking multipliers (fuel and 3P in particular), the true, landed impact is X+Y%.  See the example at the end of this article for more information on this.

 

Fuel

In recent years both UPS and FedEx have announced reductions to their fuel surcharge (FSC) indices in conjunction with their GRIs.  Those reductions were often, though not always erased by mid-year increases.  Neither UPS nor FedEx Text Box: Surcharge Carrier Svc 2015 $ 2016 $ 2016 % Additional Handling UPS Ground $9.00 $10.50 16.7% Air $9.00 $10.50 16.7% FDX Ground $9.00 $10.50 16.7% Air $9.00 $10.50 16.7% Address Correction UPS Ground $12.50 $13.00 4.0% Air $12.50 $13.00 4.0% FDX Ground $12.50 $13.00 4.0% Air $12.50 $13.00 4.0% Commercial Delivery Area Surcharge UPS Ground $2.20 $2.30 4.5% Air $2.35 $2.45 4.3% FDX Ground $2.20 $2.30 4.5% Air $2.35 $2.45 4.3% Commercial Extended Area Surcharge UPS Ground $2.20 $2.30 4.5% Air $2.35 $2.45 4.3% FDX Ground $2.20 $2.30 4.5% Air $2.35 $2.45 4.3% Residential Delivery Area Surcharge UPS Ground $3.00 $3.15 5.0% Air $3.55 $3.70 4.2% FDX FHD $3.00 $3.15 5.0% Air $3.55 $3.70 4.2% Residential Extended Area Surcharge UPS Ground $3.80 $4.00 5.3% Air $3.80 $4.00 5.3% FDX FHD $3.80 $4.00 5.3% Air $3.80 $4.00 5.3% Adult Signature UPS Ground $5.00 $5.25 5.0% Air $5.00 $5.25 5.0% FDX Ground $5.00 $5.25 5.0% Air $5.00 $5.25 5.0% Indirect Signature / Delivery Confirmation UPS Ground $2.00 $2.25 12.5% Air $2.00 $2.25 12.5% FDX Ground $3.50 $4.25 21.4% Air $3.50 $4.25 21.4% Direct Signature UPS Ground $4.00 $4.25 6.3% Air $4.00 $4.25 6.3% FDX Ground $4.00 $4.25 6.3% Air $4.00 $4.25 6.3% Residential Delivery UPS Ground $3.10 $3.25 4.8% Air $3.50 $3.65 4.3% FDX FHD $3.10 $3.25 4.8% Air $3.50 $3.65 4.3% Oversize / LPS Charge UPS Ground $57.50 $67.50 17.4% Air $57.50 $67.50 17.4% FDX Ground $57.50 $67.50 17.4% Air $57.50 $67.50 17.4% Unauthorized Charge UPS Ground $57.50 $110.00 91.3% Air $57.50 $110.00 91.3% FDX Ground $57.50 $110.00 91.3% Table 4: 2016 Major Surcharge Changes reduced their FSC indices in 2014 or 2015.  What we’re seeing this year is completely different.  Both UPS and FedEx are increasing their FSC indices beginning in November 2015, the second such increase this year.  UPS’ FSC has been higher than FedEx for the last few years.  FedEx announced their increase first, which would have brought them very close to UPS.  Subsequently, UPS announced a November increase as well, thereby widening the gap again.  There are three things to consider relative to fuel:

 

  1. The increase itself – Understand that you are going to pay more for fuel, all else being equal.

  2. Both UPS and FedEx are increasing FSCs in a falling fuel price environment.

  3. By announcing the fuel increases in November, both carriers avoid having to make it part of their GRI announcement.  Many shippers focus primarily on the annual increases, and pay little to no attention to mid-year changes, believing them to be less consequential or immaterial.

The Surcharges

As is typical, most surcharges and accessorials are increasing to a greater degree than transportation charges.  The 2016 increase has an emphasis on large bulky packages, with large increases on Additional Handling, Oversize / Large Package, and especially Unauthorized [2] (over limit) surcharges.  In a sense, this extends the change made to Ground DIM logic in 2015.  The fact that the increased fuel surcharges, and the new UPS third party surcharges will apply to the bulk of these surcharges, only increases the total impact.

 

Although both UPS and FedEx are applying heavy increases to Indirect Signature / Delivery Confirmation surcharges, FedEx has increased their already-higher surcharge by a greater percentage, bringing Indirect and Direct to parity at $4.25.

 

The Bottom Line

UPS and FedEx are masters at structuring their GRIs, and marketing them as well, in a way that downplays the real impact on shippers.  We are in the midst of what we believe will be a multi-year trend of applying heavy cost increases based not on weight, but on cube.  We saw the beginnings of this last year, and the changes coming in 2016 bear out the theory.  Moreover, by announcing a straight-line average of all services, weight, and zone combinations for Ground and for Air, the carriers effectively mask the fact that the most commonly shipped combinations are impacted more heavily.  Finally, by stacking cost multipliers, the carriers are able to apply a much higher increase than what the individual increases portray.

Text Box: 2-DAY, ZONE 4, 5 LB. PACKAGE 2015 2016 Increase $ Increase % List Rate $19.90 $21.63 $1.73 8.7% Discount 60% 60% N/A N/A Net Trans $7.96 $8.65 $0.69 8.7% Residential $3.50 $3.65 $0.15 4.3% DAS $3.55 $3.70 $0.15 4.2% Fuel %1 4.5% 6.0% N/A N/A 3P $0.00 $0.40 $0.40 N/A TOTAL $15.01 $16.40 $1.39 9.3% 1 Assumes USGC Jet Fuel price of $1.70  

For example, UPS announced an increase of 5.2% for Air services.  But the example at right shows that the list rate for a 2-Day package is going up 8.7%, and the landed (total) increase is going up 9.3%.  The implication is obvious.

 

For these reasons, it is a matter of best practice to evaluate the impact of the upcoming GRIs on your parcel spend.  This is not only a matter of budgeting, but of exploring proactive steps you can take to mitigate the upcoming increases before they hit your bottom line.

 

 

 

Joe Wilkinson is Director of Consulting within the Transportation Solutions Group at enVista.  He has more than 17 years of experience across all modes of transportation including parcel, LTL, rail, ocean and air freight.  Joe works with clients to advance profitability and corporate objectives, optimize and increase efficiencies of transportation and logistics activities, and communicate financial and strategic concepts within the organization.  He is a leading expert in parcel shipping and pricing practices and has negotiated hundreds of parcel agreements for both shippers and carriers.  His areas of expertise include transportation rating and analysis, shipping best practices, parcel market trends and developments, mode optimization, and transportation network and practice optimization.



[1] Note that the Early AM surcharge is $2.00 higher for Standard rates.

[2] The unauthorized surcharge increases on November 2, 2015, not in conjunction with the GRI.

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Chasing the Low Price Spread

Posted By Gail Rutkowski, Thursday, November 12, 2015
Updated: Wednesday, October 14, 2015

Do you remember the TV commercial about a popular brand of margarine where they compared their brand to the low priced spread?  Inevitably, as it is their commercial, the blind folded consumers choose their higher priced brand over the low priced spread.  But what happens when the blinders come off?  How many of us will choose the low priced spread just because it’s cheaper? 

 

Now we all know that cheaper isn’t always better and often times its worse.  When it comes to purchasing transportation services is cheaper the way to go?  Today more than ever the pressure on transportation managers to reduce costs never lets up.  No matter how much you squeeze your carriers your management keeps asking for more.  The end result is that relationships are strained, carriers put your business at the bottom of the pile, and you continually struggle to find carriers and/or brokers who will haul your freight.   While you may achieve some short term successes, being able to establish a sustainable transportation network will continue to elude you. 

 

We read every day that carriers are becoming more selective in choosing customers to do business with.  Of primary concerns to carriers when allocating capacity is how difficult the load is to handle and the amount of time it takes for drivers to load and unload.  How Carrier friendly are you?  There are a number of things shippers can do to become a Shipper of Choice.  Here are a few suggestions:

  • Plan Ahead – being able to give carriers advance notice of shipments goes a long way to help them schedule equipment and puts you at the front of the line.
  • Flexibility – Bunching up shipments at the end of the week/month/quarter or only loading between peak working hours makes it difficult to supply equipment.
  • Relationships – How well do you communicate with your carriers?  Do they have visibility into your operation?  Do they know what is expected and where resources need to be allocated?

A survey by Transplace, Inc. identified four key areas shippers should prioritize when striving to become a shipper of choice:

  • Economics – nearly all respondents indicated the market competitive rates and fair fuel surcharges as “critical” or “important” factors when choosing a shipper.  Payment terms and average time until payment are also key areas of focus.
  • Driver Productivity. 97% of carriers consider dwell time as an “important” or “critical” factor in determining a shipper’s status.  The ability to drop trailers and offering 24/7 freight is extremely desirable, as is no-touch, efficient freight.
  • Driver Friendly Facilities.  Carriers ranked on-site parking and available bathrooms for drivers highest.  Carriers will reject freight from shippers who do not treat their drivers with respect.
  • Relationships.  Here it is again.  Recent history has shown that outcomes sometimes can be disastrous when long-term relationships are sacrificed over price.  During economic downturns many shippers often allowed savings opportunities to pass by in favor of maintaining preferred partnerships that afforded the assurance that capacity would be met reliably and consistently.

Shippers need to understand a carrier’s costs in relation to equipment and driver productivity as well as a willingness to discuss issues the carrier may be facing.  Bringing carriers as many opportunities as possible can also be a significant factor.

 

Where does your company stand?  As more shippers vie for less equipment carriers are becoming more selective about whom they will work with.  When two shippers pay the same rate and one makes them wait for hours to unload and one who unloads within 30 minutes of arrival…they will choose the more efficient shipper every time.

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NASSTRAC Presents “An Evening with Ray LaHood”

Posted By Gail Rutkowski, Thursday, November 5, 2015
Updated: Wednesday, October 14, 2015

For those who attended the Ray LaHood event at the Chicago Club in September, it was a memorable evening. Within the intimate setting of the Chicago Club, former Secretary of Transportation, Ray LaHood, spoke to the group and answered questions regarding the state of the Highway Trust Fund and the possibility of passing a long term highway bill within the near future.

 

“Whenever you build a highway you create an economic corridor where jobs are created. Investing in infrastructure is a win-win” according to Secretary LaHood.

 

Unfortunately, he also shared that there was no talk of this in Washington today. The Highway bill is on life support and the lack of leadership, vision, and courage are hampering efforts to get a long term fully funds bill passed. There is no funding and no program. To date, 14 states have raised their gas tax for infrastructure funding and no one has been thrown out of office. Raising the gas tax and indexing it to inflation is our best hope of gaining funding for the Highway Trust Fund.

 

As most of you know, that federal tax has not been raised since 1993 under President Clinton. He shared with us the difficulties of working with the current Congress and of the very real possibility that the can will be kicked down the road for the 35th time since we last had a long term Highway Bill. He urged the crowd to make sure their voices are heard by contacting their representatives and asking for their support of a fully funded, long term Highway Bill.

 

“The answer to getting us moving is the American people. We need a six year bill. Transportation is a bi-partisan issue” said LaHood. The Secretary graciously answered questions and stayed on for after dinner drinks on the terrace overlooking downtown Chicago with Buckingham Fountain in the background.

 

We were also pleased to hear from Jack Holmes, President of UPS Freight who was interviewed by Mike Regan, NASSTRAC’s Advocacy Chairman about UPS’ recent acquisition of Coyote Logistics and the current state of the LTL industry. Jack echoed LaHood’s comments by saying that “infrastructure is everyone’s issue.” UPS Freight was our sponsor for the dinner that evening.

 

NASSTRAC wants to thank everyone for their support and attendance at the event. For those of you who were unable to join us, we have a complete video of Secretary LaHood’s comments and the Jack Holmes interview, courtesy of TranzAct Technologies, available on the NASSTRAC website on the Members Only webpage.

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An Update of the National Motor Carrier Hiring Standard

Posted By Gail Rutkowski, Thursday, October 29, 2015
Updated: Wednesday, October 28, 2015

We had a phone call recently with our friends at TIA. They told us that the National Motor Carrier Hiring Standard bill was amended in mark up on October 21, 2015 and there were some critical changes made.

 

For those of you who may not be familiar with this legislation, it was introduced in the House by Rep. Jimmy Duncan (R-TN) in 2014.  Currently, a National Motor Carrier Hiring Standard does not exist.  While Congress has recognized the importance of a national hiring standard for the truck renting and leasing industries, it has not addressed the same need for motor carriers. This lack has caused state courts to take different approaches in interpreting FMCSA causing confusion in the marketplace and wasting valuable State resources.  For example, a manufacturer or logistics company in California hires a motor carrier based in Ohio to move a load from Texas to New York.  If that truck has an accident in Pennsylvania, the courts of any one of those states could have a different standard for what constitutes a safe motor carrier beyond that established by the U. S Department of Transportation.


This legislation asks Congress to establish a national hiring standard for motor carriers rather than allowing a patchwork of state court decisions to determine the hiring standard for motor carriers. Our interstate transportation system, part of the global supply chain, needs a national hiring standard. The language in the bill does not set a standard for gross negligence or criminal wrong-doing; it only establishes a national standard for carrier selection.

 

Important things to note: 

First: In the bill, of the three items required for carrier verification (insurance coverage, valid MC/DOT number and DOT safety rating not “Unsatisfactory”) the committee changed the last one to read that the carrier must have a DOT safety rating of “Satisfactory” which represents only 13% of the truckload carrier population. 

Second: to satisfy the Democrats, an additional provision was added to state that the carrier must not have been issued an “out of service” order prohibiting them from conducting motor carrier operations. 

TIA said that Rep. Jimmy Duncan is planning on offering an alternative to the DOT Satisfactory requirement by adding that a carrier can either have a “Satisfactory” rating or be unrated (83% of motor carriers). If a carrier is unrated, it is generally an indication that FMCSA hasn’t needed to visit them for violations. 

Third: TIA needs our help and support on this important legislation. Please email the members of the T&I Committee and let them know you support Rep. Duncan’s amendment and the National Motor Carrier Hiring Standard. 


Many of you may be reading this wondering how does it impact me? Anyone who is a transportation decision maker can be subjecting their companies to untold risk by not properly vetting their transportation providers.  The problem is how does the law define “due diligence?” Currently, it is up to the states and each state can provide their own interpretation. Given that the FMCSA has the authority to license and regulate motor carrier safety in order to protect the public and reduce commercial motor vehicle accidents, they should be setting guidelines but have failed to do so.


 Let the shipper’s voice be heard on this important issue.  Visit www.nasstrac.org and take action today.



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Confessions of a Transportation Junkie

Posted By Gail Rutkowski, Wednesday, October 21, 2015
Updated: Wednesday, October 14, 2015

OK, I have to come clean and admit the obvious, I’m a transportation junkie. I absolutely love this industry and am a passionate student of it. I have felt this way since my very first transportation job, working with The Quaker Oats Company private fleet, more years ago than I care to admit. I loved working with truck drivers and I thought dispatching and being on 24 hour call was fun. Heck, I even enjoyed auditing driver logs! I have been fortunate throughout my career to have had some very amazing mentors and have made many dear friends.

 

Now, transportation wasn’t my first choice for a career path. I’ve often said, "Mamas don’t want their babies to grow up to be truck drivers." Nor did my parents expect their daughter to be working with them. When I was young, I wanted to be a U.S. senator (of course that was after wanting to be a nun, and then wanting to go live on a kibbutz in Israel…like I said I was really young). I thought I could change the world and make things better from the pulpit of the U.S. Senate. When I was 17, I made my first trip to Washington D.C. and was able to get access to the Senate gallery. I sat there for over four hours until they kicked me out, fascinated by the action on the floor below my seat. There was Senator Goldwater, and Humphrey and Ted Kennedy all talking and working together. I felt privileged to be a citizen of the United States and to be part of this democratic process.

 

Of course, any of you who know me, know I didn’t run for office. Finances, family issues and life generally interceded to knock me off my course. But once I started working in transportation and realized what a great industry this was, I jumped in and never left.

 

Through the years I’ve done just about every job in transportation on the shipper, carrier, and 3PL side. I’ve worked with small start-up companies, Fortune 500 companies, and large private companies. I know how easy it is to get caught up in the day-to-day fire-fighting many transportation managers face. It’s hard to see the forest for the trees and to pull back and make the strategic moves to help you, your company, and your industry become stronger.

 

That brings me to my message for today. Why I became Executive Director of NASSTRAC. Now, many years later I am able to marry my two passions, transportation and politics. It’s been enlightening, frustrating, and enjoyable. I also learned a few things that I’d like to share with you:

 

1)You CAN make a difference.

2) It isn’t that hard.

3) “Never believe that a few caring people can’t change the world. For, indeed, that’s all who ever have”…Margaret Mead

 

So, you can sit there and read this little missive, close it and never think about it again, or you can join us.

 

“Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek”…Barrack Obama

 

In the coming weeks I will be sharing with you some of the issues NASSTRAC is supporting and working on with other groups that will bring much needed productivity gains to our industry. I’d like you to join us to talk about these issues and how we, as shippers, can help make things happen.

 

Let your voice be heard. Join the conversation. Join NASSTRAC.

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