Hiding Behind the Amazon Effect: FedEx’s Clever GRI Strategy
When FedEx announced its 2018 rate increases last month, it predictably highlighted an average GRI increase of 4.9%.
Of course, we know that 4.9% is unlikely to be the effective rate for shippers. Instead, most businesses see larger increases. A deeper dive into FedEx’s release shows some shippers are facing outsized increases to standard rates and specific surcharges that seem to be particularly strategic.
- 2Day rates will see a 6%+ increase.
- The Residential Delivery Charge will increase between 4% and 7% depending on the specific service type.
- The Delivery Area Surcharges (DAS) will increase across most service types between 4% and 5%, though some extended residential services will increase by 80%.
To put this in perspective, a 5-pound package sent via 2Day to Zone 4 will increase 6% in 2018 over 2017. As a one-off, this $1.83 effective impact might seem small, but if you’re forecasting using FedEx’s 4.9% and shipping hundreds or thousands of packages like these, that differential makes up a surprising delta.
This emphasis on residential services and accessorials seems to target e-retailers, and the implication is clear: FedEx is challenging shippers to choose between paying more for common service types and surcharges – if you want to shift to using one of FedEx’s ever-expanding delivery options (parcel lockers, for example?), all the better – or succumb to the Amazon Effect and fall further behind the marketplace giant and your competitors.
That leaves businesses with two strategies: continue to pay more to ship 2Day to keep up or choose to go the inexpensive route. For many, going cheaper has meant relying on SmartPost, but FedEx has even stacked that option more to its favor.
Buried in the GRI release was the news that carrier will extend its 139 dimensional weight factor – or DIM divisor – to SmartPost packages in 2018. So, for example, a 12 x 16 x 18 package weighing 10 pounds in 2017 will now effectively be treated as a 21-pound package in 2018. The total cost to ship that package to Zone 4 will increase 27.8% next year. Hardly inexpensive.
It’s another clever move otherwise buried in the mass of line items and rate tables, one that’s likely to add to FedEx’s bottom line.
Even if you’re not an e-retailer, just about everyone purchases via the internet. No matter the side of that equation you’re on, you need to understand the true impact these rate increases will have on your business and the total cost of goods – banking solely on 4.9% across the board is certain to be an underestimation.
A personalized impact analysis leveraging predictive analytics and our simulation technology is a valuable, cost-free way to start planning immediately.
Andrew Brueckner is VeriShip’s Chief Customer Officer. Backed by a team of data scientists and 10+ years of benchmarking data, Andy and his team work with shippers to understand and optimize their carrier contracts.