The 2:00 Minute Warning

If your company has parcel or LTL freight, your costs could look very different soon because of events that happened this summer.

Let’s begin with the successful conclusion of the negotiations between the Teamsters and UPS. When the CEO of UPS tells the analysts that a UPS driver will be making around $175,000 a year - which includes benefits - it’s pretty safe to assume that UPS's labor costs will be significantly higher for the next five years than they have been for the last five.

That is why a bunch of experts - including yours truly - were mildly surprised when UPS chose to match the general rate increase (GRI) that FedEx had announced the week before.

FedEx announced a GRI of 5.9% for FedEx Express and FedEx Ground services that is effective January 1, 2024. UPS quickly responded by announcing a 5.9% increase for UPS Ground, Air and International services that will be effective December 26, 2023 according to their announcement.

This raises a question that every parcel shipper should be asking: since UPS’s costs have gone up, how could UPS match FedEx and issue the same rate increase, which by the way is consistent with historical trends?

The answer to that question is now becoming more clear. While UPS’s rates aren’t increasing as much as expected, here is a practical tip: watch what happens with their accessorial charges and also the changes in their operations that will change their service levels and may invent more accessorial charges.

For example, last week UPS announced that they were changing the service zones for a bunch (a.k.a hundreds) of ZIP codes. This means that they will now be able to apply accessorial charges for extended service area deliveries. Some experts are predicting that they will also extend the period for peak season surcharges (now changed to “demand” surcharges) and potentially apply an accessorial charge for high-volume shippers, who exceed the capacity threshold that UPS has allocated to them (let’s call it a tax on the rich).

Additionally, it appears that this was a defensive move by UPS to protect themselves from attrition and more damage to their account base.

Add it all up and it means one thing: If your company doesn’t have a parcel strategy that outlines your options, alternatives, and how you intend to manage these changes, you may want to get working on that as soon as possible.

Turning to LTL carriers, this summer their costs were impacted by new agreements with ABF and TForce Freight, and then Yellow announced its closure.

As we’ve mentioned before, in light of these changes we immediately began seeing rate increases - especially after Yellow’s closure since it significantly reduced capacity. And we have yet to see the full impact of Yellow’s closure since all eyes are on what will happen when the transaction to sell their terminals is completed.

That is why we continue to recommend that companies create a written LTL Strategy Plan so that people throughout the organization understand how their decisions affect a company’s LTL costs and options to reduce your LTL costs. An effective LTL Strategy Plan will also consider various scenarios when there are significant disruptions in the LTL network.

As we mentioned last week, shippers have a couple of different options. Option A is to conduct business as usual and watch your LTL rates go up by as much as 12-15%. Option B is to create an LTL Strategy Plan that outlines the changes your company is willing to make in procuring LTL capacity. This option could also ultimately eliminate those 12-15% increases and in some instances even lower your LTL costs.

It’s up to you whether you want to choose option A or B, but may we offer some friendly advice? Choose option B. If you’re looking for advice for implementing option B or if you want to learn more about how to manage these changes or ways to reduce costs, we encourage you to get in touch. Simply send us an email or better yet, let’s schedule a brief one on one conversation to get the ball rolling and save your company some money.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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