Despite facing declining shipment volumes, UPS and FedEx have both announced average delivery rate increases of 6.9%. However, the full impact of these adjustments could cost shippers even more.

The specific increase depends on various factors, such as the type of service used, package weight, and delivery destination. Customers also need to consider larger increases for long-haul shipments, additional handling fees, and higher minimum package charges to mitigate the impact of rate hikes on their business.

"You can see that this will accumulate into a very significant increase for many shippers," said Melissa Priest, founder and CEO of Alexandretta Transportation Consulting.

UPS stated in an email statement that the rate increases support network enhancements while helping to maintain high service levels. Executives from both companies pointed to inflationary pressures as another reason for the rate increases being higher than last year.

But shippers are also facing a difficult macroeconomic environment, which further prompts them to resist rate increases. As volumes fall from the highs of 2021, carriers may be more willing to negotiate discounts.

Here are key points that parcel shipping experts recommend customers pay attention to when evaluating the impact of these changes on their profits.

UPS and FedEx Rate Adjustments Differ Only Slightly

According to an analysis by Shipware, a parcel and LTL shipping consulting firm, UPS and FedEx have implemented nearly identical rate increases across various services and weight tiers.

Carrier Base Price Increases Are Nearly Identical

  • Ground Commercial: 1-5 lbs: UPS 7.34%, FedEx 7.34%; 6-10 lbs: 7.16% vs 7.16%; 11-20 lbs: 6.89% vs 6.86%; 21-30 lbs: 6.85% vs 6.84%; 31+ lbs: 7.06% vs 7.05%.
  • Next Day Air: UPS 7.68%, FedEx 7.55%.
  • 2nd Day Air: UPS 7.64%, FedEx 7.64%.
  • 3 Day Select: 1-5 lbs: 10.02% vs 9.99%; 6-10 lbs: 10.02% vs 10%; 11-20 lbs: 10.02% vs 10.01%; 21-30 lbs: 10.02% vs 10.01%.

Source: Shipware analysis. Note: UPS rates effective December 27, 2022, FedEx effective January 3, 2023.

The similarity between the two companies is no coincidence, said Kevin Miller, vice president of data insights at logistics software provider Sifted. If one carrier implements a lower increase than its competitor, its network would be overwhelmed by a surge in demand, thereby harming service levels.

"They always end up very close because neither side can currently absorb a customer volume far exceeding the other," Miller said.

Surcharges Intensify Cost Pressure

The 6.9% average increase does not account for surcharges that may be added to the final shipping cost, including residential delivery fees, oversized package handling fees, and remote area delivery fees—many of which will become more expensive once the new rates take effect.

Shippers should pay special attention to fuel surcharges because they apply to every package, regardless of size or destination, said Micheal McDonagh, president of parcel operations at AFS Logistics. Fuel surcharge percentages are adjusted weekly by both carriers.

McDonagh's colleague, Mingshu Bates, chief analytics officer at AFS Logistics, provided an example illustrating the impact of surcharges: shipping a surfboard from New York to Malibu, California via FedEx 2nd Day Air costs $153.77 this month, but will increase to $173.28 in January (according to AFS calculations).

Long-Haul Shipments See Larger Increases

The rate increases from FedEx and UPS particularly affect shippers who need to transport goods over long distances.

Deliveries falling into higher shipping zones will face larger increases. Miller said that shipping rates for zones 5 and above will increase by an average of 7.8%, while the average increase for zones 4 and below is 6.6%.

One way for shippers to reduce the risk of high-zone deliveries is to fulfill orders from facilities closer to the end customer.

"Whether using a 3PL company or a fulfillment center company, adding more warehouses becomes more important because people really want to get products faster, on time, and cheaper," Miller said. "The only way is to expand the network."

Shippers able to shorten delivery distances will benefit from the ongoing trend of carrier diversification. According to Priest, increased competition from regional delivery companies focusing on short-haul shipping has led to smaller price increases for short-distance regional zones.

"For UPS and FedEx, it would not be wise to ignore this impact, and that's what you see in the pricing," Priest said.

Rural Delivery Costs More

FedEx will impose a new surcharge of $13.25 per package for domestic packages delivered to designated rural ZIP codes in the continental U.S.

UPS previously announced a similar surcharge last year. UPS's remote area surcharge for the continental U.S. will increase to $13.05 per package, effective December 27. These fees particularly affect shippers who frequently ship to rural areas, such as merchants selling hunting gear, Priest added.

According to an analysis by independent parcel consultant Nicholas Fanelli (former global logistics head at Gelato), more than 3 million people in the U.S. fall within the coverage area of FedEx's new remote surcharge.

To mitigate these delivery area surcharges, Fanelli suggested in a LinkedIn post that online retailers should explore alternative carriers that offer deliveries without surcharges to affected ZIP codes. Shippers can also negotiate published rates with carriers or pass the surcharges on to affected orders.

Cooling Demand—A Turning Point for Shippers?

Experts point out that shipping rates are negotiable, but the willingness of the two giants to make concessions remains debatable.

Since the pandemic triggered a surge in home deliveries, carriers have had no shortage of demand. Ground shipping rates have consequently climbed to record highs, according to the Cowen/AFS Ground Parcel Freight Index. Bates said discounts are easier to obtain when FedEx and UPS prioritize volume growth over higher profits.

But the cooling demand reported by both carriers in recent quarterly results suggests that the pricing balance may be shifting in favor of shippers.

For example, UPS CEO Carol Tomé said on Tuesday's earnings call that UPS is willing to pass on cost savings from internal productivity initiatives to customers. Although UPS under Tomé's leadership has prioritized increasing revenue per package to expand profit margins, the company will balance that strategy with productivity efforts to drive future growth.

"In fact, as we continue to drive internal productivity, we are willing to return some of those savings to customers through revenue sharing, and why not?" Tomé said. "If we can improve delivery density... we will give some back, because we should."

Editor's note: This article first appeared in our Logistics Weekly newsletter.Sign up here。

Correction: This article has been updated to reflect Shipware's correction to its original analysis of UPS 3 Day Select rates, which was based on incorrect data. An earlier version also contained quotes based on that analysis, which are no longer relevant.