As eCommerce businesses continue to grow, they increasingly feel the weight of shipping and carrier costs. The 2023 general rate increase (GRI) by FedEx and UPS is the largest in recent memory. You’ve likely been concerned about how it’s impacting business so far this year.
In our view, it’s important for businesses to understand the risks that such cost increases can cause. Thankfully, there are some ways to minimize the impact of these concerns. Let’s dive into that.
What is a GRI (2023 general rate increase)?
As most business owners are aware, the cost of shipping goods has been on the rise in recent years. This rise is largely due to the increase in fuel costs, which make up a significant part of a carrier’s operating expenses. To offset these and other costs, carriers often implement what’s called a general rate increase (GRI).
A GRI is an across-the-board price increase that applies to all shipments, regardless of destination, weight, or other factors. These increases are usually announced several months in advance, giving businesses time to adjust their budgets accordingly. However, the 2023 general rate increase from FedEx and UPS came as a surprise to many businesses because of its size.
FedEx and UPS have an average of a 6.9% GRI, with additional costs for oversized goods. When you consider all of the different surcharges, fees, and rule changes, researcher Reveel projects that your costs will actually be 9.1% to 10.2% higher this year compared to 2022. Its data suggests that fewer than 4% of businesses will have shipping costs increase by 6.9% or less.
See more information on fees and additional costs here
Adapting to the 2023 general rate increase
While some businesses will be able to absorb these increased costs without too much difficulty, others may find themselves struggling to keep up. The good news is that there are steps you can take to minimize the impact of a GRI on your business. Here are a few tips:
- Review your current shipping contracts and negotiate better terms with your carrier if possible.
- Shop around for alternative carriers who may be able to offer more competitive rates.
- Use ship management software to automate shipping processes and reduce manual errors that can add to your costs.
- Work with a 3PL like Red Stag Fulfillment. We can help optimize operational costs, leverage higher volumes for shipping discounts, and work to reduce fees or surcharges.
Consider taking these steps and staying informed about upcoming GRIs and peak surcharges. That way, you can keep operations as efficient and profitable as possible, even when shipping costs rise.
What does this mean for eCommerce businesses?
The 2023 general rate increase will have a significant impact on eCommerce businesses because they hit every order. It’ll put pressure on margins, and you’ll need to decide whether to absorb the cost increases or pass them on to consumers. Many eCommerce businesses operate on thin margins and have faced uncertain order volumes, which leads to sleepless nights.
If you’re at risk of operational declines, missing orders, or even shutting your doors, it’s time to create a plan. We’re partial to you turning to a 3PL to control and reduce fulfillment and warehousing costs.
Beyond working with a 3PL on specific fulfillment, use this time to invest and review other areas of your orders:
- Can you reduce package weight or size to lower DIM weight costs?
- Can you consolidate orders and SKUs?
- Can you shift warehouses closer to customers to reduce shipping zones?
- Are you willing to try a new carrier to see if rates or services improve?
- Are there internal processes you can institute, such as additional checks during picking, to reduce error rates?
The 2023 general rate increase is just one of many challenges that eCommerce businesses are facing at the moment. The pandemic caused a sharp increase in online shopping, and this pressure on logistics networks still lingers. At the same time, many consumers are cutting back on spending, which is affecting sales. Despite these challenges, eCommerce is still growing, so it’s time to put together a long-term plan.
How does a 3PL provide protection against increase shipping and carrier costs
A 3PL can provide protection against increased shipping and carrier costs in multiple ways. We’ve discussed how they have higher shipping volumes that can be used to negotiate lower rates. Our warehouse locations and services can help you avoid some cost increases for long shipping journeys. Experts may help you find better and more affordable ways to import goods and get inbound shipments to warehouses. You can also rate shop carriers on every order and automate the selection of the lowest service that still provides on-time delivery.
There are many options on the table, and the easiest way to start exploring cost-saving methods is to contact Red Stag’s.
