How to navigate LTL General Rate Increases (GRIs).
January 5, 2016
Companies that rely on LTL carriers to move products across the country are beginning 2016 with nearly a 5 percent increase in their shipping budgets.
That's because last fall, the major carriers announced General Rate Increases (GRIs) averaging 4.9 percent, most of which have already taken effect.
GRIs are an average increase in base shipping rates from LTL carriers. Like leaves changing colors, football and the harvesting of crops, GRIs are a staple of the fall season.
GRIs are typically announced from November to early January, though a few companies made announcements in October last year. In 2012 and 2013, some companies made rate announcements during the summer.
In the fourth quarter of 2015, carriers announced GRIs consistent with the 4 to 6 percent of the last several years:
- FedEx announced a 4.9 percent GRI on September 15 that went into effect on January 4.
- Con-way Freight announced a 4.9 percent GRI on October 2 that went into effect October 19.
- YRC Freight announced a 4.9 percent GRI on October 9 that went into effect on November 1.
- Old Dominion announced a 4.9 percent GRI on November 16 that went into effect on November 30.
- NEMF announced a 4.9 percent GRI on November 23 that went into effect on December 1.
Who is and isn't impacted by General Rate Increases.
Like gas prices and airline fares, GRIs will be established by one or two industry leaders - i.e. FedEx and UPS - and others will quickly follow suit. A few will set their GRIs slightly lower and others will opt for a higher GRI, but most will equal the announced rate increases of large carriers.
GRIs typically apply to small and medium customers. Large customers and third-party logistics providers that have negotiated special rates or have contracted rates can limit the jolt of freight GRIs. Therefore, companies that ship with a freight service provider like Freightquote will be much less impacted by GRIs.
Why carriers raise rates most years.
Increasing rates are a departure from the late 2000s, when a struggling economy lowered shipping demand, which subsequently caused a price war that curbed GRIs. Since the economy has recovered and shipping demand has rebounded, steady annual increases have become the norm again. This is especially true given the higher costs that freight companies are experiencing, which are cutting into their profit margins. Factors include:
Shipping lines will almost always attribute GRIs to their increasing costs, which include higher wages to drivers because of a nationwide driver shortage, as well as escalating expenses for things like compliance, maintenance and insurance.
Equipment costs are also considerably higher, according to many of the carriers, especially investments in technology. LTL carriers are meeting the increasing demand for data integration and up-to-the-minute tracking. To improve efficiency, carriers are also adopting technology that measures dimensions and weighs freight faster. While haulers will experience lower costs down the road, the upfront investment in these capabilities comes at a steep price.
Those hoping that the recent trend in lower fuel costs would result in a smaller GRI this year will be disappointed. Movement in fuel prices are reflected in carriers' fuel surcharges, not in their GRIs. The price of fuel will have little to no effect on the base rate charged for shipping.
Some rates will be higher than the GRI.
The announced GRI is only an average and the actual increase a shipper may experience could vary by the company it uses, where it's shipping from and to and how much lead time it provides the hauler.
One zone might see an increase of 8 percent or even 10 percent while another might be only 2 percent, based on how the carrier is balancing volume in and out of certain lanes.
Another factor that could lead to larger increases than the GRI is supply and demand at the time services are needed. The continuing driver shortage and the lack of overall truckload capacity during certain periods, combined with growing demand for shipping, means spot rates can be considerably higher than announced GRIs.
Small or medium size companies that work directly with LTL carriers may have to budget for GRIs every year. Depending on how much they ship and whether the higher shipping rates can be absorbed, GRIs can force companies to raise their own prices or at the very least increase their shipping surcharges.
Working with a freight service provider like Freightquote can help you ease the burden of GRIs.
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