2022 has officially begun! The start of a new year is a time for reflection and resolutions – and in the world of logistics, when a fresh round of General Rate Increases (GRIs) comes into effect.
Annual GRIs are one of the most challenging parts of planning a successful shipping strategy. These hotly-anticipated announcements from shipping carriers cause brands and 3PLs alike to grapple with what this means for managing freight costs in the year ahead.
Given the impact of expensive shipping rates on a retailer’s profit margins, it’s essential that businesses understand how to manage General Rate Increases effectively to avoid losing revenue and disappointing customers with a lower standard of service.
In this post, we’re going to dive into the 2022 General rate Increases for FedEx, UPS, and USPS – and what merchants can do to prepare for an increase in shipping costs.
GRI stands for General Rate Increase, which refers to the annual percentage increase in the freight rates of parcel and ocean carriers.
General Rate Increases are put in place at the beginning of each year to reflect increasing costs across the supply chain. This includes fuel, insurance, wages, and other operational costs which carriers pass onto shippers in order to maintain reliable service levels.
GRIs are typically announced in October-November of the previous year, a time frame that gives shippers time to prepare for this increase.
Most GRIs are in the realm of 4%-6%. It might not sound like a lot, but this usually results in a significant hike in shipping costs for merchants (keep on reading to find out why).
After a few years of moderate increases, upcoming GRIs have taken many shippers by surprise.
While USPS has stuck to a modest 3.1%, both UPS and FedEx have announced a hefty 5.9% increase for 2022 – a jump that’s sure to hurt merchants’ profit margins.
This is because few shippers will be facing just a 5.9% increase. Large pricing variations for priority services, in addition to surcharges for residential delivery and additional handling, are going to hit ecommerce brands particularly hard.
According to modeling by shipping consultancy Reveel, more than 97% of shippers will see their rates increase by more than 5.9% next year. In fact, FedEx’s Ground Economy service alone will see an average increase of 26% during 2022.
Even USPS shippers are going to feel the pinch, with Shipware forecasting actual freight increases between 5%-8%. In sum, General Rate Increases aren’t going to be small change for merchants next year.
Unlike a General Rate Increase, a Peak Season Surcharge (PSS) is a temporary increase applied to base shipping rates to help parcel carriers cope with increased demand and higher operational costs.
Seasonal surcharges are traditionally put in place during the holiday season, where higher retail sales and gifting activities put short-term pressure on parcel networks. This is why Peak Season Surcharges take the form of a flat fee applied to each package, rather than the percentage increase we see with GRIs.
However, COVID-19 has blurred the lines between PSS and GRI. Thanks to skyrocketing ecommerce growth and consistently high parcel volumes, temporary surcharges are coming into play during the rest of the year as well.
FedEx caused controversy earlier this year when they elected to introduce a fresh round of surcharges in June, causing some commentators to suspect that PSS has transitioned into a form of surge pricing during periods of high demand. When applied together, PSS and GRI result in rapidly rising freight costs that seriously affect a business’s profit margins.
Average GRI increase at UPS: 5.9%
Going into effect: December 26th, 2021.
For the full list of General Rate Increases, see UPS’ website.
Average GRI increase at FedEx: 5.9%
Going into effect: January 3rd, 2022.
Going into effect: January 17th, 2022.
Going into effect: January 24th, 2022.
For the full list of General Rate Increases, check out FedEx’s website.
Average GRI increase at USPS: 3.1%*
Priority Mail Express (Average GRI increase: 3.1%)
Priority Mail Express (Average GRI increase: 3.1%)
First-Class Package Service (Average GRI increase: 7.6%)
Standard FR Envelope: + 11.8%
Legal Size FR Envelope: + 11.4%
FR Padded Envelope: + 12%
Small FR Box: + 11%
Medium FR Box: + 3.7%
General Large FB Box: – 1.8%
APO/FPO Large FB Box: – 1.9%
Regional FR Box A: + 4.5%
Regional FR Box BB: + 5.7%
Package length over 22 inches – $4
Package length over 30 inches – $15
Package length over 2 cubic ft. – $15
Going into effect: January 9th, 2022.
* USPS General Rate Increases are still subject to approval. For a full list of proposed price changes, see USPS’ application here.
Different businesses will be affected by GRIs in different ways, so it’s important to understand where price increases are going to hit your brand the hardest during 2022.
For example, if you’re regularly shipping large packages, you’re definitely going to see a sizeable rate increase next year. It’s worth exploring whether switching to a flat-rate shipping method will help to cut costs, or whether you need to improve cartonization to streamline your packages.
Businesses should also consider the following areas when auditing the 2022 General Rate Increases to make sure they are optimizing shipping rates for both cost and speed:
As highlighted in our rundown of GRIs for the major carriers, not everyone is taking the same approach to rate increases in 2022. USPS is aiming to gain more market share by keeping their rates more competitive than UPS and FedEx, for example, but is taking a much tougher line on oversized packages. Taking advantage of multiple parcel providers allows your brand to leverage different rates for different service levels and take the sting out of additional surcharges.
General rate increases raise the age-old question: Should merchants be passing shipping costs onto their customers?
Offering free shipping has a fair list of pros and cons for retailers, so it’s important to make sure that your current shipping policies can withstand freight increases.
As shipping costs creep up, businesses may find themselves needing to bake these increases into their product prices or recalculate their free shipping threshold to ensure they aren’t making a loss on orders. If this is the case, be sure to communicate these changes to your customers with plenty of notice to avoid confusion.
General Rate Increases can put a bit of a damper on the start of the new year but knowing how to manage increased shipping costs effectively is the key to keeping your business profitable and maintaining the brand experience that your customers expect. By following the tips above, you can prevent GRIs from taking a bite out of your bottom line in 2022.