As we approach the end of 2024, U.S. shippers are bracing for significant changes in shipping costs due to the announcement of the 2025 General Rate Increase (GRI) from UPS. Effective December 23, 2024, UPS has revealed an average net increase of 5.9%, which aligns with its competitor FedEx’s increase set for January 6, 2025. While the headline figure may seem manageable, the reality is that most shippers will experience far higher increases due to various factors, including surcharges and changes in shipping characteristics.
Understanding the Implications of the 2025 GRI
1. UPS and FedEx: A Trend of Increasing Rates
The matching of FedEx and UPS rate increases is a clear signal of the ongoing challenges both carriers face, including rising labor costs and a soft market environment. Following a turbulent labor negotiation period last year, UPS is keenly aware of the balance between maintaining competitive pricing and ensuring profitability. This GRI marks a continuation of a trend that began in 2022 when both carriers broke their longstanding pattern of lower annual increases.
Shippers should prepare for a sustained period of higher rate increases. It’s plausible to anticipate that the days of modest 3.9% or 4.9% increases are behind us.
2. Hidden Cost Increases: A Closer Look at ZIP Code Changes
UPS’s announcement indicated that changes will occur in the list of ZIP codes subject to Area Surcharges and those aligned to specific zones. This might not seem significant at first glance, but it poses a risk of unexpected increases for shippers. As certain ZIP codes are reclassified, it could lead to higher shipping rates, especially for shippers who might not have the immediate capability to analyze these changes.
3. Rate Increases Across Weight Breaks
Analysis of the rate increases shows that most weight categories will experience increases at or above the average net increase of 5.9%. For instance, 2nd Day Air and Ground Residential services are projected to see the largest increases. The shifts in zone pricing, particularly for Zones 5-8 in 2nd Day Air services, indicate a strategic move by UPS to counter competitive pressures.
4. The Impact of Minimum Charges
Minimum charges are another area where shippers need to be vigilant. While UPS has not dramatically raised these charges in 2025, any increase can significantly impact your bottom line. For example, the minimum charge for a ground shipment will rise from $10.70 in 2024 to $11.32 in 2025, representing a 5.79% increase. For shippers with existing discounts, understanding how minimum charges interplay with rate increases is crucial.
5. Surcharges: The Hidden Costs
While the average GRI stands at 5.9%, the reality is that many common surcharges are set to increase significantly more. Surcharges can account for 20% to 40% of a shipper's total shipping spend, making it critical to understand how these will impact overall costs. For instance, Additional Handling and Large Package Surcharges are projected to rise over 26.5% on average, with new methods for calculating these surcharges further complicating the landscape.
6. Comparing UPS and FedEx Rates
As is typical, the oligopolistic nature of UPS and FedEx pricing continues to influence the shipping market. While there are minor differences in pricing strategies, FedEx may offer some advantages, particularly for lighter-weight shipments and in the context of the new 40 lbs minimum billable weight for Additional Handling from UPS.
Strategic Steps for U.S. Shippers
Given the anticipated increases, what can shippers do to mitigate the impact on their budgets?
Analyze Your Shipping Profile: Understand your specific shipping characteristics to fully grasp how the GRI and surcharges will affect your costs.
Explore Carrier Options: Engage with multiple carriers. Regional carriers are increasingly viable alternatives, offering competitive rates. Services like OnTrac and LaserShip can help expand your options.
Negotiate with Carriers: Use these increases as leverage to negotiate better terms. With the introduction of new charges and significant rate hikes, carriers are likely more open to discussions.
Conclusion
While UPS’s announcement of a 5.9% average net GRI may appear manageable, shippers should prepare for a more complex reality where actual cost increases may be significantly higher due to surcharges and changes in pricing structures. Now is the time to assess your shipping strategies, engage with your carriers, and negotiate favorable terms. Partnering with a consulting firm like Gain Consulting can provide valuable insights and help you navigate these changes effectively. Your shipping budget depends on it.
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