Previously, UPS had announced their annual General Rate Increase (GRI) for package services in November.  This announcement was a bit tricky as they publicized a 4.9% increase, but it was actually a 6.9% increase but UPS wanted us to take a 2 point allowance for a reduced fuel surcharge.  Confused?  Just wait.  Their sister company, UPS Freight, was the first LTL carrier to announce its GRI on December 18th.  Both package and freight rates will be effective on January 4, 2010. Note:  Good luck to all of you who are responsible for budgeting and forecasting freight costs for 2010, hope you don’t mind the late notice!

Here’s the good part; the advertised 4.9% for package and 5.7% increase for freight aren’t real.  In other words, you can’t simply take your total 2009 spend and multiply by 4.9% and 5.7% respectively.  It’s not that simple.  In fact, for most of you, I suspect your increase will be higher, unless, of course, you built in escalation clauses into your contract.  You see, no one raises rates in broad brush fashion.  That would be too easy and allow shippers to easily negotiate away the impact of the increases.  Here are a few examples:

Zone 2 shipments weighing 1 pound increase 5.9%.  Zone 2 shipments weighing 1-5 pounds increase 6.4% on average, 6-11 pounds 6.0% on average and 11-25 pounds 4.9% on average.  Shipments weighing more than 25 pounds take a smaller increase…that’s how you get an overall 4.9% increase.  Increases vary by ground and air.  For example, Next Day Air Saver increases 8.24%, Next Day Air and 2nd Day Air 7.9% while the other air products have a smaller increase.

They have radically changed their fuel surcharge.  The one good thing they did was raise the trigger from $1.50 per gallon of diesel to $1.75 per gallon and for jet fuel from $1.33 per gallon to $1.46.  LTL carriers still have triggers of $1.15-1.20/gallon.  The last time diesel was at $1.50 was December, 2003, so package is finally recognizing what everyone else already knows.  Fuel will never be below $1.50 again.  However, that good news is tempered with adjustments to the intervals and fuel surcharge rates.  Basically, it all boils down to an increase in fuel surcharge costs for ground and a decrease for air.

My favorite are the often overlooked surcharges.  Insurance for declared value increases 7.7%, additional handling fees 6.7%, ground address corrections 25% (that will increase the demand for audit services!), delivery area surcharges $0.10 each, hazardous material fee 10% increase, large package surcharge 11.1% increase and residential service 7.3% increase.

The same game is played with LTL General Rate Increases.  The carriers, like UPS Freight, announce a 5.7% increase but that is just an overall average and your actual increase will be dependent upon what you ship, where you ship and the surcharges you incur.  In the announcement letter, UPS states; “The impact may vary based on specific lane or shipment characteristic, such as weight or class.  You will be able to view and download the new rates at www.ltl.upsfreight.com on January 4.”  It doesn’t say you’ll be able to figure out where all the increases are because you won’t.  The base rates are too complex to figure that out.

UPS is out there.  They have placed the proverbial line in the sand.  Of course, FedEx has pretty much matched UPS on the package side and we’ll see what happens when the rest of the LTL carriers announce their GRI.  They now have a target at which to shoot.  I thought they might wait to see if YRC would survive and ask for even higher increases. 

Each and every year carriers increase rates between 5-7% on average.  Average being the key word.  However, this year, when comparing to the overall economy, they are encouraging more companies to negotiate frozen rates, escalation clauses or neutral tariffs.  When the Producer Price Index (PPI) decreases 2.73% comparing 2009 to 2008 and the Consumer Price Index decreases .76% during the same time frame, UPS and the other carriers are just setting themselves up for addtional negotiations to mitigate these unreasonable increases.