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Rate increases…what’s causing them?

Feb 14, 2015

Have you been wondering why there was another GRI (General Rate Increase) in January? If you are finding it difficult to understand why the shipping rates have increased again you are not alone. The average increase to the base rate alone is 4-6% and varies by carrier. LTL rates are also impacted by the increased use of dimensional weight pricing for packages under 3 cubic feet in size. Rate increases impact most methods of shipping. Especially challenged at this time are the LTL(less-than-truckload) and TL (truckload) carriers.

Although fuel prices are down, resulting in a reduction in fuel charges invoiced, this does not equal lower shipping charges overall. There are many factors causing the increase in shipping costs as well as the increased use of the dimensional weight pricing by LTL carriers. Things like greater demand on existing capacity, new equipment, staffing costs, and ever-increasing operational costs.

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Capacity

Space is at a premium with the economy improving. An increasing number of packages are being shipped and the carriers are challenged to optimize capacity. To make the most of the existing capacity carriers are now applying dimensional weight pricing to more packages to encourage shippers to improve their packaging practices. Shippers have to balance the need to protect package contents with the cost of shipping overly large, lightweight boxes. A package should be just large enough to protect the contents but not excessively large. This will reduce excess packaging materials and overall package sizes assuring optimum use of existing carrier capacity.  Carriers are also enforcing dimensional weight pricing where they previously may not have by utilizing dimensional weight equipment on docks to help with this challenge.

 

Increased Fleet Size

 Many carriers are ordering new trucks to replace aging ones and in an effort to increase capacity. Of course this costs money and takes time before the new trucks can be produced and delivered to the carrier. Increasing capacity is not as simple as carriers adding more trucks to their fleets. They must also find qualified, reliable drivers.

Staffing Costs

There has been an ongoing shortage of truck drivers. Tighter regulation, a high rate of driver turnover and more appealing semi-skilled construction jobs have contributed to this challenge. Changes to hours of service and other regulations are forcing companies to add more drivers to haul the same amount of freight. The only way for carriers to compete against other employment options for qualified, reliable drivers is to substantially increase wages to attract and retain them in hopes of not only keeping pace with current capacity but increasing it to accommodate increased demand.

Operational Costs

Of course we can’t forget costs of operating a business in general continue to rise as well. Electricity, maintenance costs, construction, insurance, warehousing and more.

Minimize the impact

Hopefully this helps to clarify why the increases are happening. Minimizing the impact of these increases is a concern shared by all Shippers. There are many factors involved and a more in-depth topic than can be reviewed in this article.

Taking a close look at your packaging to assure you to minimize the impact of the increased use of Dimensional Weight Pricing is a good place to start. For further assistance with controlling the impact of the rate increases contact your American Group representative or call to learn more about how we can simplify your shipping process.