Why Shipping Rates Go Up Every Year
by Jason Stark
There are many reasons why shipping rates increase every year. In case you haven’t heard, FedEx, UPS, and DHL will all be increasing their small parcel shipping rates by an average of 5.9% in 2022. Here, we will cover a few of the biggest reasons why.
Expanded routes and coverage areas
As American cities continue to expand, so does the need for coverage in these areas. Every year, more and more Americans are moving out of the cities and into more rural areas in search of affordable housing. What this means for shippers is that they have to start increasing their routes. This means more trucks, more drivers, more workers in general. In some cases, even creating new distribution centers to keep up with demand.
All of this means that costs per package go up every year for a carrier when they meet the demands of their customers. If prices stayed steady, over time this could lead to funding shortages to even maintain their fleet. For any shipper to continue to bring a high level of service, price increases are a necessary evil.
Fuel and labor
Each year, prices for fuel and labor are expected to rise. When carriers perform their annual reviews, they have to account for these increases. Often it will be reflected in increased rates for customers.
According to AAA, the national average of gas prices in the United States is currently $3.42. This has increased by $1.31 from last year’s average. As carriers spend significant funds each year on fuel, this can significantly increase the price.
External costs of doing business go up
Every time a new tax is levied, the cost of a package can go up dramatically. This can be in the form of a gas tax, gas guzzler tax, or any number of other state and municipal taxes that the shipper operates in. According to the National Conference of State Legislatures, since 2013, 33 states and Washington D.C. have enacted legislation to increase gas taxes. These laws can sometimes combine to create a noticeable increase in costs on their own.
Just as international laws can affect how technology companies have to do business here, state laws can impact how a shipper does business across the country. It’s not always as straightforward as a local tax or law only impacting shipments in that state. Oftentimes, these laws can have far-reaching implications. For example, in 2021 Colorado passed a transportation fee into law that increases delivery fees for online retail orders to 27 cents. Previously this fee had been 25 cents, but those pennies add up.
Along with everything mentioned above, there is one massive reason why most businesses reevaluate their pricing every year. Inflation. Without diving into an entire article on why inflation happens (trust me, that could be a doctoral thesis on its own), the fact remains that the spending power of a dollar diminishes every year. Typically by 2 to 4%. So even though a company might have done very well one year, they can expect to lose 2 to 4% of the value of the money they make every year.
So what can I do to keep my costs down?
The best thing to do is to review your carrier portfolio and make sure all the appropriate carriers are added to your EasyPost account. With a multi-carrier approach to shipping, you can save money by comparing rates across carriers. That way you know you’re getting the lowest price possible. The big shippers will always have their place, but you’ve never had more alternatives than you have today. Read more about the importance of carrier diversification with EasyPost.
If you are already an EasyPost customer, reach out to your account manager today to discuss how best to minimize the impact of these rate increases. If you aren’t already an EasyPost customer, get in touch with us to learn more about our modern shipping solutions.