As 2025 approaches, businesses relying on parcel shipping will experience higher rates. Annual rate hikes from companies like FedEx, UPS, and USPS are nothing new, but in recent years, these increases have become more pronounced due to rising fuel costs, labor shortages, the growing demand for e-commerce and for some carriers, the need to protect revenue per parcel. For shippers, preparing for these inevitable cost adjustments is crucial to maintain profitability and customer satisfaction. By anticipating changes and adopting strategic measures, companies can minimize the financial impact of rate hikes and optimize their shipping operations.
Understand the Rate Structure and Surcharges
The first step in preparing for parcel rate increases is to gain a clear understanding of the rate structures and surcharges that shipping carriers apply. General rate increases (GRIs) usually cover base shipping rates, but a significant portion of costs comes from surcharges. These additional fees can range from address correction, residential delivery, fuel to large and oversize parcels, address correction and additional handling. At last count, FedEx and UPS have over 100 additional fees, or what UPS calls “rates for value-added services.”
It’s important to analyze your shipping patterns and costs to identify which surcharges impact your business the most. For instance, if a large portion of your shipments are sent to residential addresses, rising residential surcharges could significantly affect your expenses. Similarly, businesses shipping lightweight but bulky items should closely monitor changes in dimensional weight pricing, which bases shipping rates on the amount of space a package takes up rather than its actual weight. A proactive review of these factors allows shippers to anticipate how upcoming changes will impact their specific shipping profiles.
Negotiate Carrier Contracts Early
Shippers should consider negotiating their carrier contracts well before rate increases take effect. Carriers are often willing to provide discounts or waive certain fees in exchange for a long-term commitment, but these negotiations take time and depend on shipping volume and consistency. Early negotiations provide leverage as shippers can explore multiple carrier options and potentially secure more favorable terms before GRIs are implemented.
It’s also wise to evaluate the flexibility of your contract terms. For example, if surcharges are set to increase drastically in 2025, negotiating a cap on certain surcharges can mitigate financial risks. This approach is particularly important for high-volume shippers who may be in a better position to request more favorable terms based on their volume commitments. Be prepared to show historical shipping data that demonstrates your reliability and predictability as a customer, as this will strengthen your negotiating position.
Diversify Your Carrier Mix
Relying on a single carrier can leave businesses vulnerable to rate increases, especially if that carrier imposes substantial fees or limits service offerings. Diversifying your carrier mix allows for greater flexibility and potential cost savings. Using a multi-carrier shipping strategy enables you to choose the most cost-effective option for each shipment, taking advantage of competitive rates and avoiding over-reliance on one service.
The US Postal Service, regional parcel carriers, transportation management systems that provide parcel services, crowd-source services such as DoorDash and Instacart and even certain retailers’ last-mile delivery services such as Walmart’s Go Local should be considered. Don’t forget other delivery options such as Buy Online Pick Up in Store, lockers and pick-up at third-party locations such as UPS Stores and FedEx Stores.
Partnering with multiple carriers allows businesses to tailor their shipping approach to each region or delivery type, making it easier to absorb cost increases without passing those costs on to customers.
Optimize Packaging and Shipping Processes
Another key strategy to combat rising shipping costs is to optimize packaging and shipping processes. Since carriers are increasingly focusing on dimensional weight pricing, reducing the size of packages can lead to significant savings. Shippers should evaluate whether they are using the right-sized boxes for their products and consider investing in packaging solutions that minimize excess space. Lightweight packaging materials that still protect the product can further reduce costs.
Additionally, automating the shipping process through software can help streamline operations and improve cost efficiency. Shipping software that integrates with multiple carriers can automatically compare rates in real time, allowing businesses to select the most economical option for each shipment. Furthermore, these tools can automate label printing, track packages, and manage returns, reducing labor costs and improving accuracy.
Plan for Rate Increases in Your Budget
Lastly, businesses should proactively plan for rate increases by incorporating them into their budgeting and pricing strategies. Shipping costs are often one of the largest operational expenses, and failure to account for rising rates can quickly erode profit margins.
This may involve adjusting product prices, implementing shipping fees, or offering incentives for customers to choose slower, more cost-effective shipping options. Additionally, consider offering free shipping thresholds to encourage larger purchases that offset the cost of shipping. By passing some of the cost on to customers without sacrificing competitiveness, businesses can maintain a healthy bottom line while absorbing rising parcel rates.
Focus on your priorities by partnering with a parcel expert
Preparing for parcel rate increases is not just an annual event, carriers often increase various surcharges or even introduce new surcharges throughout the year.
Do you have time to monitor parcel pricing changes throughout the year?
Not only does SLB Performance monitor the parcel market, but it can also reduce businesses’ parcel cost by 20% or more utilizing proprietary modeling tools.
SLB Performance and its affiliate partners combined experience is leveraged to reduce your costs while improving the analytics to manage your business more effectively.
For a free analysis, contact Jay Kent.