FedEx and UPS 2024 Rate Hikes: A Detailed Guide for Shippers

The parcel delivery market may be tilting in shippers' favor, but UPS and FedEx customers will still face rate increases for 2024. The two delivery giants have announced a 5.9% average rate increase on their various shipping services, effective Dec. 26 for UPS and Jan. 1 for FedEx. This is a smaller increase than the 6.9% bump both carriers implemented for 2023, reflecting declining demand.

FedEx and UPS have since released full details of these rate increases and accompanying surcharges. Parcel spend experts note that the rivals' changes are unsurprisingly similar, extending beyond the 5.9% average.

Increases Target Expedited, Long-Distance Deliveries

The 5.9% rate hike at FedEx and UPS is only an average. Actual increases vary based on each delivery's shipping characteristics, including:

• Distance traveled: Shipments moved over longer distances, measured by "zones," will see sharper rate increases than those delivered closer. For FedEx, ground and air deliveries in zones 2-4 will see an average increase of 5.91%, while zones 5-8 will see a 6.39% average increase, according to an analysis from LJM Group. UPS has similar discrepancies.
• Package weight: Heavier packages will generally see greater rate increases compared to lightweight parcels at both carriers. For example, shipments weighing 1 to 5 pounds will see a 5.5% increase for commercial ground services at both FedEx and UPS, according to a Shipware analysis. Packages weighing 11 pounds or more will see rates jump by at least 6%.
• Service used: Faster shipping services will generally see price increases above the 5.9% average. A Shipware analysis shows rates for minimum charges that FedEx and UPS levy for air cargo services versus slower ground transportation offerings.

Shippers should also consider surcharges that apply to their shipments, which are not factored into base rates but will also increase for 2024. Added fees include charges for large and oversized goods, packages requiring additional handling, and deliveries to remote locations.

AFS Logistics Chief Analytics Officer Mingshu Bates said UPS is adjusting which ZIP codes it considers rural or remote areas of the U.S., which comes with an added delivery fee for shippers. How UPS classifies these ZIP codes has a marked impact on a package's shipping cost. Delivery area surcharges for 2024 will range between $3.95 and $7.70, while remote area surcharges will cost $14.15 in all states except Alaska.

"If you happen to shift to one of those fortunate or unfortunate ZIP codes, you're going to see a huge difference," Bates said.

FedEx and UPS Adjust to Competition

The variances within rate hikes indicate which shipment types face greater competition. Regional carriers serving specific areas continue to expand coverage and capacity, offering alternatives for shorter-distance deliveries.

"I think that speaks to them feeling a little bit more of a competition from regional carriers than they're willing to admit," said Paul Yaussy, a senior consultant of professional services at Shipware.

FedEx and UPS also face competition for lightweight packages that don't require expedited delivery, even at longer distances. Amazon Shipping is touting lower shipping prices than what shippers can expect from the parcel giants.

"We have some of our clients getting some offers from Amazon Shipping, and the offers are pretty aggressive," Yaussy said. "We've seen that their service guide is very, very similar to those that FedEx and UPS have."

Competition is less heated for longer-distance and heavier shipments using expedited services, allowing FedEx and UPS to impose higher rate increases without dissuading too many shippers. These shipments are also more expensive for carriers pushing to reduce operating costs and increase efficiencies.

How Shippers Can Reduce Rate Hikes' Sting

Despite the rate hikes, shippers are in a prime position to negotiate better contract terms as delivery demand remains soft. Parcel carriers are offering more robust discounts to secure volume, benefiting customers like Macy's and Rent the Runway.

A key for shippers in negotiations is to understand their biggest strengths as a customer that could lead to reduced charges, said Nicholas Fanelli, managing director of Shippingwise.

"Do you have multiple packages shipping from the origin to the same destination on the same day? In that case, you have a strong argument to be negotiating certain surcharges, like the fuel surcharge or residential surcharge, because they're already going there," Fanelli said.

Companies should also consider internal adjustments to avoid unnecessary shipping costs, experts told Supply Chain Dive. This could include exploring ways to put products in less bulky packaging or splitting a large item into two individual shipments to avoid surcharges. Shippers may also opt for less expensive ground transportation for time-sensitive deliveries if the destination is close enough to the origin.

Carriers welcome such adjustments from customers, as it makes their volume easier to handle, said Kevin Miller, VP of data insights at logistics software provider Sifted.

"[Carriers] can give you suggestions as well on how to improve your network to help them be more efficient," Miller said. "By doing so, it will save both companies money."