Think Inside the Box: How to Handle Freight Charge Changes From the Big Shippers

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December is the time associated with great gifts in big boxes. But come January, HVAC contractors have to brace themselves for big changes coming from UPS and FedEx—along with some new ones that just went into effect.

It’s hardly how most of us would kick off a new year, but come 2016, UPS and FedEx will calculate freight shipping cost calculations using a dimension-based model. The bottom line: Contractors that absorb freight expenses when suppliers and distributors ship items might as well ask them to enclose a billfold full of cash as well.

How exactly will this impact the HVAC world? First another bummer: FedEx will increase it U.S. domestic and import/export rates about 5 percent come Jan. 4. That marks a third consecutive year of FedEx rate hikes; a package costing $50 to ship in 2013 now costs $57.88.

But the major rub comes from the game of inches, where FedEx will pump up prices for “oversized” packages that exceed maximum dimensions. Formerly $57.50, it will now rise to $67.50. Finding these dimensions on FedEx’s website is a major undertaking, but exact details should appear before the increase takes effect on Jan. 4. This price bump also comes with increases in roughly two dozen categories.

And as of Nov. 2, FedEx instituted a new “unauthorized” package fee. For any package measuring more than 108 inches long, more than 165 inches in length and girth, or weighing more than 150 lbs., the charge nearly doubles, from $57.50 to $110. Can you say FedExpensive?

FedEx has stated that the new charges are related to changing industry demand dynamics. But that also includes a higher fuel surcharge, and that change hardly makes sense in an environment when gas prices plummeted in 2015.

It doesn’t help matters that also on Nov. 2, UPS jacked its over-maximum limits fee to $110—and that in 2016 it will join FedEx with a 5 percent ground services increase. On its website, UPS cites a number of improvements to its system, including an expansion of UPS Next Day Air Early service to include nearly 4,500 additional ZIP Codes. But it’s hard to get excited about that expansion when the new costs far outpace inflation: over-maximum fees have gone up $52.50, to $110.

On that same day, the UPS fuel surcharge—once again puzzling at best, a cash grab at worst—went up from 4.75 percent to 5.25 percent for ground, and from 3 to 4.5 percent for air. The latter represents a 50 percent increase, so if you’re paying $500 in air delivery fuel surcharges, prepare to gas guzzle another $250.

What are some options that HVAC business owners and managers have to counteract the changes made by these two major carriers?

1. Look at the competition. The United States Postal Service, for example, offers cheaper rates in many categories and is working hard to land an increasing share of the shipping business. That said, you’ll want to check carefully as to how reliable the USPS is in your shipper’s zip codes, and consider how it’s played out in your own. In Chicago, for example, two decades of USPS reforms haven’t done all that much to shake the region’s performance as among the worst in the nation.
2. Work on packing more efficiently. Especially if you have a great relationship with your suppliers and distributors, inform them of the changes—which they may not know about—and find ways to team up and reduce packing dimensions and weight wherever possible.
3. Negotiate wherever possible. This can be tricky as you’ll need to establish who takes charge here: the shipper or you, since you’re paying the bill. But if you’re doing big volume with either service, talk to managers at FedEx and UPS to see what’s possible. Don’t be shy about mentioning the need to take business elsewhere if nothing can be worked out—but do it in a calm, professional manner without ranting. And if you plan to make good on leaving, make sure you really do have a plan B in advance.
4. Work out other ways to ship. It may not be possible in many cases, but consider whether your drivers in the vicinity of a distribution hub, for example, can pick up shipments when their rounds permit. And if your Uncle Ralph wants to earn a few bucks schlepping boxes around, so much the better.

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Posted In: Management, Money