02 Nov What Is A General Rate Increase (GRI) In Parcel & Freight Shipping?
A General Rate Increase (GRI) is a rise in a carrier’s base shipping rate that applies to all shipments, regardless of the service or class of service. Often, rate increases reflect higher demand. But that is not the case right now. Rather, this past year, carriers have been hit hard by rising costs and they aim to offset these expenses by increasing parcel and freight rates.
UPS & FedEx have already announced their 2024 GRIs, so there has been time to perform analysis and outline the ramifications. The trucking companies typically report their GRIs later in the year. So, while this post delves deeper into parcel data, much of the information is relevant to freight transport shippers as well.
Typically, GRIs grab the headlines and carrier account managers tend to promote the GRI to their clients. Yet, in most cases, it is the not well publicized changes in carrier surcharges that will take a bigger bite out of your budget.
This blog post will cover important details that you need to know about GRIs and surcharges, how they might affect your business, and explain the money-saving benefits of GRI Analysis Services.
With parcel & freight demand falling, why are carriers announcing a GRI?
High operating and labor costs have created challenges for many carriers. Even though parcel and freight demand is soft compared to the robust shipping frenzy of recent years, carriers are hoping to make 2024 GRIs stick.
Further, no matter what market conditions exist, parcel and freight customers have come to expect an annual GRI, so of course the carriers are happy to oblige.
Certainly, some shippers will pay more than they should next year because they have been conditioned to expect GRIs and they may wish to avoid the time and hassle of any switching costs. Other shippers may be content with the well-established performance of their specific carriers or the good business relationships they have with account managers, so they are willing to pay a premium to maintain the status quo.
2024 GRIs
FedEx and UPS each announced a 5.9% GRI. Due to limited national competition, these two parcel carriers have reason to be confident they will extract more dollars from shippers next year. This year, regional parcel carriers provided savings and successfully took market share from the two giants, which is why their smallest price increases in 2024 are specifically for short-haul distances.
Truckload (TL) and Less-Than-Truckload (LTL) carriers are in a more difficult position to raise rates due to the current competitive landscape. However, low-cost provider Yellow went bankrupt this year, which removed capacity and served as a stark reminder to carriers of the importance of maintaining profitability in a tough market. As mentioned above, freight transportation companies typically share their GRIs later in the calendar year than do the parcel companies.
Should I plan my budget based on a GRI announcement?
No. In most cases, a GRI is not a good indicator of how a transportation budget will be impacted.
An article published by FreightWaves clarifies this point: “The headline percentage change announced by the carriers is typically the expected average increase the rate adjustment will have across all of the impacted accounts.”1
In other words, your results will vary, depending on your company’s shipping needs. Of great importance, the GRI applies only to the base shipping rate. Surcharges cost extra.
For example, let’s take a closer look at the FedEx GRI of 5.9%. According to data analysts at AFS Logistics, the carrier’s average surcharge will actually increase 9.8%. Even more eye-opening if you ship oversized packages, your surcharge on those big items will go up between 18.8% and 21%.2
In a recent article published by Parcel, a key insight regarding the UPS 2024 GRI announcement was shared. “As is always the case with carrier General Rate Increases, and noted with an asterisk at the bottom of the announcement, ‘the impact of these changes on your shipping costs will vary according to your shipping characteristics and the terms of your UPS agreement.’ Translated, very few shippers will realize an increase equivalent to 5.9%; most will be higher. It’s important you understand how base rate and surcharge increases will impact your 2024 UPS spend.”3
Do most shippers pay the GRI that is communicated by their carrier?
No. In fact, at some freight carriers, only 20 to 25% of their customers are subject to a GRI. Shippers with contracts or on an individual pricing arrangement pay less, depending on the terms of their contracts.
However, contracted shippers whose discounts are based on current carrier rates are impacted. Because even with the discounts, when the base rates rise, their contracted rates increase correspondingly.4
Why are parcel rates so high compared to five years ago?
GRIs add up significantly over time. The 5.9% GRIs dispatched by FedEx and UPS are their second highest in the past five years (tied with 2022). While lower than last year’s record 6.9% increase, the current rate is still higher than the 4.9% bumps of 2019 and 2020. In just 5 years, the cumulative impact is enormous – a remarkable 28.5% in base rate increases by the parcel giants.
Go back in time a bit further and the increased costs are shocking. The compounded FedEx GRI since 2018 is over 45%, according to the most recent TD Cowen/AFS Freight Index.5
What does a surcharge mean?
A parcel or freight surcharge is an extra fee added to the shipping bill by the carriers. Typically, a surcharge compensates for extra expenses involved in additional handling, oversized packaging, special services, and in recent years, the high price of fuel.
What happened to “Peak” Surcharges?
Historically, Q4 was peak season for parcel companies. With the high demand, carriers implemented peak surcharges. However, during the pandemic, peak season never ended as volumes remained elevated all year. So, last year FedEx and UPS dropped the term “peak” and implemented what they called, “demand surcharges”.
Even though volume has declined since then, the never-ending demand surcharge remains. So in the current peak season, the parcel carriers developed clever nomenclature – charging an extra 6% more in “Oversize Demand” and “Additional Handling Demand” surcharges. Plus, “Residential Demand” surcharges cost anywhere from 5% to 8% more for high-volume shippers.
Are surcharges, zone charges and other accessorials affected by GRIs?
No, not at all. Yet, these charges typically do increase every year. Often, these charges are communicated at the same time as a GRI and often, the percentage increase is actually higher than a GRI.
So, unfortunately, the vast array of fees, surcharges, zone charges and other accessorials that carriers tack on to a GRI make it extremely difficult for shippers to know the real-world impact of these costs. Many people make the mistake of underestimating how a general rate increase will impact their business.
According to a recent article in Parcel, surcharges make up between 20% and 40% of a parcel shipper’s annual spend. Of note, when speaking to investors, the carriers refer to surcharges as “levers” that are used to drive revenue growth.6
What Can I Expect with Truckload (TL) & Less-Than-Truckload (LTL) GRIs?
Freight carriers face a great deal more competition than parcel carriers, yet they still roll out GRIs year-after-year. Further, they are experiencing the same operational and labor cost constraints as parcel carriers.
In Q3, the TL linehaul cost per shipment (CPS) declined 19.9% YoY. However, the CPS still stands 26% above pre-pandemic levels.
In the LTL market CPS declined only 5.9% YoY in Q3. Even with Yellow’s exit, the market remains soft. But Yellow was a low-cost carrier, which means many of their former customers had no choice but to migrate to higher-cost carriers.7
We can expect multiple small freight transport carriers to exit the market soon, as those with low cash flow struggle to survive, according to the American Trucking Associations’ Chief Economist, Bob Costello.8
Yet, other sources indicate there are signals that the weak demand is gaining strength and the market is slowly moving towards equilibrium.9
The Port of Long Beach recently proclaimed that September was their busiest on record as the Southern California port moved more than 829,000 twenty-foot equivalent units (TEUs).10
With capacity high, demand soft, and some signs pointing to a rebound, this is a good time for shippers to negotiate with financially secure trucking companies.
What is a GRI Analysis and How Can SSI Help Me?
A detailed GRI analysis takes into account all the factors mentioned in this post and then some, to determine what the full impact to your budget will be based on your carrier’s announced GRI and surcharges.
Upon request, our industry experts will create for you an accurate parcel carrier GRI analysis or a TL/LTL freight GRI analysis. By analyzing your historical carrier data, our reporting will provide you with great clarity on how a new rate schedule will increase your parcel or freight spend.
Once I Know The Full Impact of a GRI, Can SSI Help Me Save Money?
Yes. SSI can provide advice about how to negotiate with your carrier to mitigate the cost impact. Gain a competitive edge by being well informed and armed with data insights so you can negotiate optimal carrier terms at affordable rates based on your own business needs, not the carrier’s profit objectives.
We encourage you to connect with one of our carrier GRI analysis experts. To learn more, contact SSI.
What if I Want to Negotiate Better Freight Rates with Multiple Carriers?
SSI also offers carrier contract optimization services. As a part of our comprehensive review of your shipping requirements, our skilled team will identify areas that represent opportunities for parcel and freight savings, offer authoritative advice on contract negotiations, and mitigate year-over-year rate increases. SSI will empower you to fully optimize your carrier contracts. Our team is eager to help you out. Let’s talk.
Footnotes:
1, 4. G. Todd Maiden, “LTL: How do general rate increases work?”, January 02, 2022, as published by FreightWaves.
2. Blog post, “Unpacking The What’s And Why’s Of FedEx’s 2024 GRI Announcement”, October 6, 2023, as published by AFS Logistics.
3, 6. Paul Yaussey, “UPS 2024 General Rate Increase: What you Need to Know”, October 16, 2023, as published by Parcel Media.
5, 7. Source: “Q4: 2023 TD Cowen/AFS Freight Index”, as published by AFS Logistics.
8. Colin Campbell, “More carriers likely to fail in muted fall freight season: ATA”, October 24, 2023, as published by Trucking Drive.
9. Zach Strickland, “How long will the capacity correction take?”, October 21, 2023, as published by FreightWaves.
10. Kim Link Wills, “Port of Long Beach CEO: ‘Consumer confidence is on the rise’”, October 19, 2023, as published by American Shipper.
SSI blog post entitled: What is a general rate increase (GRI) in parcel & freight shipping?