Effective January 1, 2015, FedEx and UPS will raise their shipping rates an average of 4.9 percent on all packages shipped in the U.S.
In addition to their annual rate increase, FedEx announced in May that they will also apply dimensional rating to all packages. Prior to this announcement, packages measuring three cubic feet or less were rated at their actual weight. Now every package regardless of size will be rated on their dimensional weight.
For example, a box measuring 18x12x12 weighing 2.4 pounds will now be rated at 15.62 pounds. It’s estimated this new model will increase shipping costs 20 to 30 percent for smaller boxes.
FedEx will also implement surcharge increases for Smartpost, Home Delivery and Ground packages. The residential delivery surcharge will increase from $2.90 per package to $3.10, and the oversize box surcharge will rise from $55.00 to $57.50.
So why did FedEx and UPS increase their shipping rates and surcharges so dramatically? Simply put, both companies know that more consumers are purchasing products online. That means more goods are being shipped instead of consumers purchasing products from local brick and mortar establishments. As a result, the small package shipping giants saw an opportunity to bolster their bottom lines.
That in a nutshell is what these price increases mean. Transportation analysts have estimated these new rate increases will generate upwards of $350 million in annual revenue for FedEx and even more for UPS. Despite their publicly stated efforts to justify rising costs while maximizing profits, FedEx and UPS will line their pockets at the expense of consumers and small businesses.
Large companies like Walmart, Home Depot, Target and others have enough leverage that they can mitigate these price increases. But smaller companies like Christmas Lights Creations don’t have that luxury. Discounts given to big box retailers are much higher because they spend so much more every year with FedEx and UPS. Discounts are given based on how much is spent annually on a rolling average, and we’ll never spend the amount on shipping as do our big box competitors.
The impact of these price increases has the potential to be especially harmful to many e-commerce businesses and consumers. Most online retailers ship products in smaller boxes that will be directly effected by the new price increases and surcharges. But the majority of our products are shipped in large boxes, thus we’ve been paying shipping costs based on dimensional weight since we began operations in 2013. Therefore, the impact of these new rate increases will not be as dramatic for us as they might be for other retailers.
We’ve been planning on these new rate increases and dimensional rating methods since they were announced earlier this year. We’ve identified a number of products that can be shipped in smaller boxes that will reduce costs. We’ve also implemented a free shipping model that is in line with every big box retailer in the U.S.
Beginning on January 1, these adjustments to how we ship products will help us remain competitive. Since getting the company off the ground, we continually monitor our shipping costs so that we can adjust retail prices accordingly. We don’t want our customers spending more for our products than they should, and we’re confident our efforts will help us set retail prices that are as good if not better than our competitors.