Widening hole in your pocket - shipping costs annual increase

It`s a well known fact that UPS and FedEx increase their rates every year for 6-7 %. They are not alone in this "beat the inflation game", freight companies do the same plus they have a few more unobvious ways to balloon your shipping costs without you noticing it.

Let`s take a look at a typical transportation contract and how LTL companies can charge you more:
  • Base Rate - Freight companies more or less syncronize their base rates but still some companies have higher base rate (Yellow, Roadway, ABF) and some have a lower one (UPS Freight). The difference I`ve observed was up to 10 %.
  • Base Discount - Once you negotiate your contract - it`s difficult for freight companies to reduce your base discount. So this part usually stays the same but keep your eye on any change in the base discount anyway.
  • Direct/ Interlane discounts - almost every company has certain routes it doesn`t serve directly and outsources deliveries to a partner. Pay extra attention to any change in your interlane discount. This is a perfectly legit yet difficult to see through way to increase your transportation bill.
  • Minimum charges - If your industry is online retail - significant portion of your shipments will be rated at a min charge. Whenever you renegotiate the contract - make sure that min charges don`t go up. If you paid $80 + fuel surcharge and your new charge - $100 + fuel surcharge - your total shipping costs just got bumped by ~10 %.
  • Accessorial fees - there are many accessorial fees that you don`t expect be applied but many of them will. To name a few: Residential, Liftgate, Notification, Single Shipment and many more. Freight companies rely on shippers (manufacturers) to mark necessary services on the Bill of Lading. UPS and FedEx implemented an address verification solution that checks customer address for residence vs. commercial location and applies residential charges even if they were not applied at the time of shipping. Freight companies find their ways to increase the revenue and apply previousely ignored charges. A $30 surcharge applied on 20 % of your shipments -> another 4-5 % increase in your shipping costs.
  • Billing errors and refunds - I`ve seen increasing number of wrong discounts applied on my clients` invoices. Errors goes up, time to get a refund goes up to -> unless you catch those errors and claim adjustments - your shipping costs go up.
So, pay attention to your shipping contracts and periodically inspect invoices for unpleasant surprises and billing errors.

Have nice holidays and be profitable.

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1 Comments:

Blogger Sri Jayam said...

So informative blog. Valuable to share with friends.
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November 29, 2015 at 9:18 PM  

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