It’s that time of year again. Halloween candy has hit the shelves, Christmas decorations are popping up at big box stores, and carriers are beginning to prepare for holiday-fueled demand surges.
UPS has announced plans to hire over 100,000 seasonal employees to meet peak season demand, and the U.S. Postal Service is gearing up to add 28,000 new workers.
As a result of this increased hiring — as well as rising inflation — peak season surcharges have climbed steeply over the last year.
“The carriers have the control,” Sifted Chief Growth Officer Caleb Nelson said. “Even though volumes are starting to level out, they are still at a high growth clip from three to four years ago, just not as high as the last two years. Carriers want clients that fit their network, while penalizing those that ship freight that isn’t efficient for them.”
One area that carriers have emphasized this year is “ugly freight,” or shipments that are hard to put through their automated systems. These packages are more formally referred to as non-conveyable shipments.
UPS, for example, has instituted additional handling price hikes for this type of freight, up 8% over 2021. The company’s large package fees have climbed 16% year over year. Additionally, over-maximum fees have surged 60%, up to $400 per package on top of standard charges.
Shippers will see similar rate increases with other carriers this year, including FedEx.
These surcharges will be most impactful for business-to-consumer shippers and companies with products that do not fit in a standard box.
“If you’re shipping to residences and your product doesn’t fit a 10x10x10 box, you better be prepared. It is going to be a double whammy,” Nelson said.
While it is impossible for shippers to avoid surcharges altogether, there are steps companies can take to optimize their operations and ward against profit losses during the holiday season.
“Data is the language of transportation,” Nelson said. “If you are going to understand how these surcharges affect you, you need to understand your shipping data.”
Shippers can utilize technology to help them analyze their shipping data and conceptualize the true impact these surcharges will have on their companies. From there, they should be able to pinpoint simple ways to reduce costs or boost efficiency to safeguard themselves against profit losses this holiday season.
“You can unlock some low-hanging fruit to tackle, whether that means working with your carriers to mitigate costs or closing in on other areas of potential greater efficiency,” Nelson said. “Cost is not all about your transportation partners; a lot of cost has to do with internal decisions.”
Shippers should embrace technologies that allow them to model “what-if?” changes. These solutions visualize the impacts of possible adjustments like box size or shipping location changes, allowing shippers to determine which proactive operational shifts will prove worthwhile in the coming months.
“A lot of people know there are golden nuggets, but they don’t have time to mine their data to find them,” Nelson said. “Using Sifted, they can easily say, ‘These changes will result in a cost savings of X.’ Sifted allows shippers to model changes virtually before making a single step in reality.”
It is possible for shippers to identify cost-saving opportunities without the help of technology partners, but the process typically involves a significant amount of time, frustration and complicated spreadsheets. Eventually, manipulating spreadsheet data can keep shippers from spending ample time focusing on other areas of their operations.
When shippers partner with companies like Sifted, they become nimble, quick and informed. In turn, they are able to strengthen their relationships with FedEx and UPS by becoming more refined.
The benefits of this data-driven approach doesn’t stop after peak season. FedEx and UPS are both facing probable labor cost hikes in the coming year. FedEx recently announced their largest general rate increases ever, and UPS will likely follow suit.
The Trade Association for Logistics Professionals — the group that represents FedEx’s 6,000 contracted drivers — is calling for better pay in the face of widespread inflation.
“The group’s leader, Spencer Patton, has been vocal about the dire outlook for FedEx contractors due to rapidly rising costs and inadequate per-stop and line-haul compensation,” FreightWaves’ Mark Solomon reported last month. “Patton has called for a 50-cent-per-stop pay increase on all FedEx Ground and e-commerce stops. In addition, line-haul pay would increase by 20 cents a mile on all solo and team runs between hubs. Spot runs would receive a 10% increase in compensation.”
UPS is facing similar pressures. The Teamsters will renegotiate its contract in July 2023. Union members, much like FedEx’s contractors, are expected to request pay increases in response to inflation.
“Peak season is the tip of the iceberg. What comes next is the hefty general rate increase,” Nelson said. “Shippers should be aware that now is the time to be looking at data, having better conversations and contracting with companies like Sifted.”