Earlier this month, FedEx released their much-anticipated 2023 GRI. As we’ve all come to expect around this time of year, analyses of the carrier’s new rates have dominated shipping conversations in the subsequent weeks. We did our own deep dive into their published 5.9% increase here, which is best summarized with the phrase, “Don’t Believe the Hype.” In what’s become a tradition at this point, UPS followed suit and recently released their own GRI announcement, with a (gasp) 5.9% average rate increase as well.
As we patiently wait for UPS and the other parcel carriers to release the details of their GRI’s, the team here at Solving Work thought it would be nice to look at some fun facts about GRI’s across all modes. The national duopoly releasing their coordinated annual GRI’s is a popular event around the logistics water cooler, but the rate increases for various other modes can be just as impactful, if not more.
We’ll start with the next size up from the parcel world, LTL (Less than Truckload) shipments.
Along with being a step up from parcel shipments in terms of size and weight, Less than Truck Load shipments are more complex when it comes to rates as well. Parcel carriers generally keep all shippers on the same base rate structure, but that isn’t the case with LTL carriers.
For LTL shippers, you can either be on a carrier specific tariff, the equivalent of a parcel rate agreement, or a general tariff, such as the Czar, which applies across multiple carriers. Typically, both types of these tariffs are updated at least once a year, similar to parcel GRI’s. However, since the field of LTL carriers is larger, the updates are rarely timed to coordinate with one another, and can happen on each individual carrier’s timeline.
Depending on the type of agreement you sign with an LTL carrier, your tariff can either correspond to the current year, or a previous year’s rates. If you’re on the current year’s tariff, your rates will be subject to any changes that are announced from the carrier that year. For tariffs corresponding to prior years, these agreements generally only last for a single year, and so there is a built-in mechanism for your rates to go up each year as well.
Like we said, it’s complicated.
To make matters worse, LTL carriers base their accessorial charges on separate rules tariffs. These rules tariffs can be updated frequently, at the carrier’s whim, making it even more difficult to keep up with what each shipment will eventually cost.
Jumping up another step to Full Truckload shipments, we see both a drop and a rise in complexity, depending on how you look at it. That’s because this mode actually has a good mix of both contracted rates and spot market rates. Shippers with high, consistent truckload volumes can be offered contracted rates, and these are typically good for 6 months to a year depending on the situation. But because the truckload market is so fragmented, the spot market is very active, and thus it’s a mode that doesn’t see official GRI’s. The ability and willingness of truckload carriers to accept spot quotes often eliminates or circumvents the need for contracted rates, and thus carriers lose the ability to schedule rate increases.
One fun wrinkle for this mode is that when the markets do heat up, carriers don’t always honor contracted rates. A telling metric for the full truckload industry is contract rejection rate, which looks at how often carriers are ignoring contracted rates and issuing spot quotes instead due to high demand. So, while the fragmented market usually means there are no complex annual GRI’s, it also means that rates fluctuate freely and frequently, and sometimes are only good on paper.
Ocean FCL and LCL
Switching gears to the open seas is where things start to get wild. Ocean carriers can and do issue GRI’s at any time, whenever they feel like it, though regulatory agencies do require a 30-day notice before they can take effect. These are often similar to Rate Restorations and Peak Season Surcharges, to say that basically, if the ocean carriers want more money (or think they can get more money), they will issue a GRI to make it happen.
However, as with the full truckload market, the rate increases might not stick. Unlike parcel and LTL GRI’s, ocean carriers often abandon rate increases in down markets to try and foster business. There are also instances in ocean carrier agreements where shippers can negotiate such that they are not subject to these random rate increases, which makes understanding your particular agreement very important. Finally, when ocean carriers are trying to make their prices stick, they can resort to skipping sailings or slow steaming to reduce transportation capacity. In these cases, the ocean carriers are said to be utilizing good pricing discipline, but it’s often very hard to tell how long that discipline will last.
Ah, the friendly skies. Due to the frequency of air freight shipments, or lack thereof, most shippers rely solely on the spot market. Passenger flights make up more than 45% of the cargo space for this mode, and that makes transportation capacity fluctuate wildly depending on seasonality and consumer budgets. Typically, shippers only resort to air freight if something is late or needed on short notice, and thus you don’t see very many contracted rates. That being said, GRI’s for this mode are almost nonexistent. The friendly skies indeed!
Any discussion of GRI’s across modes would be incomplete without some discussion of the parcel industry. And while it might be the smallest of the modes, with the continued rise of e-commerce, it’s arguably the most important.
The parcel industry has a long and storied history of annual GRI announcements. Historically, they are released in Q4, to take effect Q1 of the following year, without fail. In recent years though, there have been more mid-year updates being announced, especially covering rate increases to accessorials. We’ve seen this trend emerging for both national and regional carriers post COVID, and it doesn’t seem to be going away.
Most carriers make a general announcement of an average rate increase, as in UPS and FedEx’s 5.9% increase announced earlier this month. But this “average” excludes accessorials, which make up a large amount of the final cost, and applies only to published base rates. The actual impact to shippers will be determined based on their agreement, not on those base rates, and so this “average” announcement should always be taken with a healthy dose of skepticism.
Here are some helpful questions for any parcel shippers to ask themselves regarding their GRI’s:
- Does my agreement have a GRI cap in place?
- How do my discounts and minimums affect the base rate charges?
- What are my accessorial incentives?
The fact that GRI’s are more common and standardized across the parcel industry doesn’t mean they should be taken for granted. Do your homework, otherwise don’t complain about the failing grade you may get from your CFO come crunch time.
At this point, General Rate Increases are a common occurrence in the shipping industry. But, depending on your unique shipping profile and what modes you use most frequently, how they affect your business can look very different. At Solving Work, we believe one way to fight burnout and put people first is giving them the knowledge and tools they need to break the Logistics Doom Loop and finally get ahead of issues. In that vein, understanding GRI’s better is a great first step in creating the bandwidth you need to do something about them. If you want to learn more or have any questions about how carrier GRI’s are affecting your bottom line, we’d love to chat!
You can reach out to us here, and we’ll do our best to help make it make sense 🙂