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What Are Your Shipping Options?
In the next few weeks, all the carriers will complete their 2008 pricing announcements. As we look at the future, it’s probably a good bet that these carriers’ rates aren’t going down any more than the cost of oil. So what’s the impact and action plan for your business? Given the size of the increases that have been announced so far, multichannel companies need to look at all the options open to them and develop short and long-term strategies to reduce the impact. UPS has announced that they will be increasing Ground rates by 4.9% in 2008, which is equal to last year. (FedEx will most likely match the UPS Ground increase, but that information has not yet been released.
) Under new rates, the Ground commercial zone 2, 1-lb. rate has increased 5.0% over last year—overall, a 16% increase over three years, from $3.62 in 2005 to $4.20 in 2008.
For 1-70 lb. packages the average increase is 4. However, if the majority of your shipments are in zones 4 or 5 –like many businesses are- the increase is about 5.16%. Depending on your warehouse location and the predominant zones in which you ship to customers, the impact could be more or less than this average. Meanwhile, the Ground residential minimum charge increased to $6.15, a combination of the base rate for zone 2 and the Ground residential surcharge. In a quick survey of shipping tables of 66 multichannel companies, we found that 71% of the tables were lower than this $6.15 minimum charge.
As AFMS Logistics Management Group’s Managing Director Rick Collins points out, “The announced rate increases of 4.9% for Ground and 6.9% for Air from FedEx and UPS masks the true impact for many shippers. The base rates may average the announced increases across the board; however higher zone express shippers could experience increases in the 9-10% range. Additionally, surcharges are increasing up to 20% in some cases. Surcharges for irregular and large packages are up 8.3% to 12. Commercial remote add-ons are increasing 7.1% and residential fees are up 5.
4% for Ground.” All is not totally gloom. There was some good news on November 15, when the Postal Service Governors announced that future prices will be adjusted using new regulations issued by the Postal Regulatory Commission (PRC) on October 29. Consistent with the Postal Accountability and Enhancement Act of 2006, future price increases for mailing services will be capped at the rate of inflation. Said Postmaster General John E Potter, “This delivers one of the main goals of the new law for business mailers—a predictable price schedule.” The new pricing regulations give the Postal Service added flexibility for shipping services. “We intend to use this new flexibility to grow our competitive business,” said Potter, “offering volume discounts and contract pricing.” Looking at the industry as a whole, however, Edward Wolfe, transportation stock analyst for Bear Stearns & Co., had this to say: “Our sense is FedEx is clearly trying to send a message of pricing strength to both its customers and to competitors UPS and DHL.” I think we’ve gotten the message.
Now we need to do everything we can to reduce freight costs. With the continual increases in the cost of oil and shipping, we think that companies need to assess both short and longer-term strategies. Here are 15 short- and long-term options to investigate: 1. Renegotiate your contract. 2. Can you use USPS to your advantage? 3. Are you using best-way rate shopping? 4. Consider package weighing, and take out inserts when they push the package into a higher bracket. 5.
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