[Updated post from January 5, 2022]
2023 has officially begun. The start of a new year is a time for reflection and resolutions – and in the world of logistics, when General Rate Increases (GRIs) make their presence known.
The annual GRI is one of the most challenging parts of planning a successful shipping strategy. These hotly anticipated announcements from shipping carriers mean that brands and 3PLs need to grapple with what this means for managing freight costs in the year ahead.
Given that shipping rates are one of the biggest overheads for retailers, it's essential that businesses understand how to manage the General Rate Increase effectively and avoid losing revenue or disappointing customers with a lower standard of service.
In this post, we're going to dive into the 2023 General rate Increases for FedEx, UPS, and USPS – and what merchants can do to prepare for an increase in shipping costs.
GRI stands for General Rate Increase, which refers to the annual percentage increase in the freight rates of parcel and ocean carriers.
General Rate Increases are put in place at the beginning of each year to reflect rising costs across the supply chain. This includes the most common service types, fuel, insurance, wages, raw materials, and other operational costs which carriers can pass on to shippers to maintain reliable service levels.
GRIs are typically announced in October-November of the previous year, a period that gives shippers time to prepare for this increase.
GRIs can vary significantly between carriers, but usually sit between 4-6%. This might not sound like a lot, but it translates significant hike in shipping costs for merchants.
Unlike a General Rate Increase, a Peak Season Surcharge is a temporary increase applied to base shipping rates during a specific time frame to help parcel carriers cope with increased demand and higher operational costs.
Peak season surcharges are traditionally put in place during the holiday season, when higher retail sales put short-term pressure on most carriers. Typically, they take the form of a flat fee applied to each package, rather than the percentage increase we see with a General Rate Increase.
However, COVID-19 has blurred the lines between GRIs and Peak Season Surcharges. Thanks to skyrocketing e-commerce growth and consistently high demand, temporary surcharges are coming into play outside of peak season. When applied together, seasonal surcharges and GRI shipping charges result in rapidly rising freight costs that seriously affect a business's profit margins.
After a few years of moderate increases, upcoming GRIs for 2023 are going to hurt the profit margins of many shippers - unless they have a plan for how to absorb them.
With parcel volumes dropping, we are past the capacity crunch seen during the pandemic. But challenges to carriers' distribution network are far from over. Thanks to rising inflation, parcel carriers have seen their operating costs increase significantly during 2022. This, combined with efforts by USPS to reduce losses, has led to substantial GRI shipping increases being put on the table.
USPS has announced an average General Rate Increase of 5.5%, up from 3.1% in 2023. Meanwhile, both UPS and FedEx have announced an average increase of 6.9% – a 1% jump from last year. Lasership/OnTrac has followed in their footsteps by touting a 6.9% GRI, which puts under question their value proposition as a cost-effective alternative to other carriers.
However, the effect of a General Rate Increase is more complex than it might appear. In addition to freight rates, parcel carriers may increase prices for priority services and value-added services. With fuel surcharges and fees for residential delivery added into the mix, these GRI changes are set to hit e-commerce brands particularly hard.
However, there have been some positive developments. The development of a larger regional carrier market has given shippers more choice and flexibility over what services they use, which is forcing major carriers to increase their reliability and processing capabilities. This means that despite GRIs, there are generous discounts on offer for large-volume shippers, as many carriers fight to secure the biggest slice of the pie as possible.
Average GRI increase at UPS: 6.9%
Effective from: December 27, 2022.
UPS Ground: 6.36%
UPS 3 Day Select: 9.95%
UPS 2nd Day Air: 7.67%
UPS Next Day Air Saver: 7.10%
UPS Next Day Air: 7.16%
UPS Next Day Air Early: 6.46%
Check UPS' full list of 2023 rates here.
Average GRI increase at FedEx: 6.7%
Effective from: January 2nd, 2023
FedEx Ground: 7.91% average increase
FedEx Home Delivery: 7.91% average increase
FedEx Express Saver: 7.46% average increase
FedEx 2 Day: 7.47% average increase
FedEx 2 Day® AM Package: 7.87% average increase
FedEx Priority Overnight: 8.49% average increase
For a full list of 2023 shipping rates, check the FedEx guide.
Average GRI increase: 5.5%
Effective from: January 22, 2023
Retail Ground: 6.4% average increase
Parcel Select: 5.1% average increase
Priority Mail: 5.5% average increase
Priority Mail Express: 6.6% average increase
First-Class Package Service: 7.8% average increase
Domestic Extra Services: 6.5% average increase
Priority Mail International: 6% average increase
Businesses will be affected by GRIs in different ways, depending on their shipping strategy and which trade routes they are using. Although the average GRI for a specific carrier might be 5%, the increase for specific services will be significantly higher than that. Therefore, it's important to stay informed on how price increases are going to affect your brand - and make adjustments accordingly.
For example, if you're regularly shipping large packages, more expensive shipping costs could be in store as more carriers penalize packages with a high DIM weight. It's worth exploring whether switching to a flat-rate shipping method will help you to avoid the worst rate increases, or whether you need an improved cartonization system to streamline your packages further.
Businesses should consider the following areas when auditing the 2023 General Rate Increases to make sure they are optimizing their chosen shipping rates for both cost and speed:
As highlighted in our rundown of GRIs for major carriers, not everyone is taking the same approach to rate increases. USPS is aiming to gain more market share by keeping their rates more competitive than UPS and FedEx, while Lasership/OnTrac is promising steep counts to alleviate their on-par increase.
By taking advantage of multiple parcel carriers, your brand has increased flexibility to leverage different shipping methods and service levels to take the sting out of additional surcharges.
General Rate Increases raise the age-old question: Should merchants absorb shipping costs themselves, or pass them on to their customers?
For small D2C merchants, taking on the entirety of GRIs just isn't possible due to substantial losses. As shipping costs creep up, businesses may find themselves needing to bake these increases into their product prices or recalculate their free shipping threshold to ensure they aren't making a loss on orders. If this is the case, be sure to communicate these changes to your customers with plenty of notice to avoid confusion.
E-commerce brands that partner with a third-party logistics provider are much better insulated against the effects of General Rate Increases. This is because 3PLs can leverage their large parcel volumes to negotiate discounts with parcel carriers, helping to alleviate some of the impact of GRIs. Moreover, a 3PL partner with multiple fulfillment centers can practice zone skipping by shipping orders from facilities close to your end customers, which ensures lower carrier rates.
The annual General Rate Increase can put a bit of a damper on the New Year but knowing how to manage increased shipping costs effectively is the key to keeping your business profitable and maintaining the brand experience that your customers expect. By following the tips above, you can prevent GRIs from taking a bite out of your bottom line in 2023.
