The UPS/FedEx General Shipping Rate Increase for 2018, Explained

No company likes to hear the phrase “rate increase,” particularly when it comes to shipping. However, as much as we dislike them, these increase are necessary, not just to increase profits for the shipping carriers, but also to keep up with the ecommerce, business to consumer (B2C) marketplace. As such, both UPS and FedEx have announced general shipping rate increases for 2018. The bad news: Those increases are significant. The good news: Sometimes changes like these increases lead to opportunity. This article will help explain what these increases will mean for you.

For 2018, UPS and FedEx both announced a 4.9 percent shipping rate increase for 2018; however, this rate represents an average increase. The increased rate isn’t fixed and depends on a number of factors, including service level, zone, and weight. Your individual shipping patterns determine the rates you will pay, and most companies will pay more than 4.9 percent. Companies are less likely to use express services for low zone shipping than for high zone shipping, so in many cases, the rate increase will be higher than the 4.9 percent average implies. Here are some other important things to know:

Dimensional pricing could cost you:

Discounts for packages weighing 10 pounds or more for UPS SurePost and FedEx SmartPost have dropped dramatically compared to discounts for packages weighing less than 10 pounds. And since SurePost and SmartPost use dimensional pricing rather than actual weight, some larger packages weighing less than 10 pounds could still be shipped at the 10 plus pound rate. If you are a shipper whose packages could be DIM’d to a 10+ pound billable weight, you may want to move them into the FedEx Home Delivery network to avoid the extra cost.

There are some important differences between UPS SurePost and FedEx SmartPost in 2018.

In 2017, UPS SurePost and FedEx SmartPost had the same minimum charge. In 2018, FedEx costs 2.07 percent less than UPS. Here are some additional differences to keep in mind:

• In 2017, UPS SurePost was less expensive in seven out of 10 Delivery Area Surcharge (DAS) in the U.S. In 2018, FedEx SmartPost will be less expensive in eight out of 10 DAS categories.
• In 2017, UPS generally had lower surcharges than FedEx. In 2018, UPS’s surcharges will be the same or greater than most of FedEx’s surcharges.
• UPS announced peak season surcharges in June 2017, which went into effect on December 24, 2017.
• FedEx continues to be 13 percent higher than UPS for three-day service.
• As of 2018, UPS SurePost is significantly more expensive than FedEx SmartPost. For shipments greater than 10 pounds (which is the majority of shipments), the overall increase is 6.8 percent for UPS and 5.4 percent for FedEx. In other words, UPS SurePost 1.4 percent more expensive than FedEx SmartPost.
• For the first time, UPS’s minimum rates for SurePost exceed its minimum for both ground services. FedEx SmartPost rates are equal to its ground services.
• For 3-Day Select/Express Saver, rates depend on zone. The FedEx premium is much higher for shorter zone shipments (zone 2 to 5).
• Surcharges such as UPS’s Over-Max are increasing by as much as 233 percent. For an oversized package weighing 150 pounds, the FedEx surcharge has increased from $115 to $300, and the UPS surcharge has gone from $150 to $500.

In other ways, UPS and FedEx have become more aligned as a result of their shipping rate increase in 2018.

Perhaps most importantly, there are fewer advantages shippers have with one carrier versus another. Here are a few examples:

• FedEx SmartPost has added a new 2.5 percent surcharge on third-party billed invoices. This brings FedEx in line with the fee UPS has been charging since 2016.
• UPS changed their DIM weight divisor on small packages measuring less than 1 cubic foot from 166 to 139, making it equal to FedEx.
• UPS changed their large package surcharge calculation. Previously, they added a surcharge when length plus girth exceeded 130 inches. Now, the cutoff is 96 inches.
• In 2018, UPS and FedEx’s next day air rates are similar

Why all the shipping rate increase for 2018? The ecommerce market is changing, and there is new competition in the marketplace—namely, Amazon and USPS. The USPS and Amazon threaten UPS and FedEx’s ground delivery spaces.

More specifically, as ecommerce grows, shippers are pushing the boundaries of what’s “shippable.” Online purchases such as furniture, mattresses, tires and other large and unusually shaped items are common, which puts a strain on carrier networks. The 2018 surcharge increases are aimed at getting these kinds of packages out of each carrier’s small parcel network. Most of the rate increases for 2018 announced by FedEx and UPS affect expedited and larger distance shipments.

Ultimately, UPS and FedEx want not only to generate more profit, but also to change shipper behavior. In light of the shipping rate increase for 2018, keep in mind that many of the reasons you may have chosen one carrier over the other may no longer stand. Shippers should reevaluate how they make carrier routing decisions and how they use carriers like FedEx and UPS.