As you prepare for the fall season, you're likely thinking about back to school, changing leaves, and—if you're in logistics—the traditional General Rate Increase from logistics and transportation companies. The General Rate Increase or (GRI) with transportation companies is an average increase of the base shipping rates provided by carriers. The GRI typically comes out in September or October each year. It is traditionally dictated based on supply and demand – and usually increases from four to six percent annually.
In this blog post, we'll cover key facts about the general rate increase within the transportation industry, who is impacted the most, and a few simple tips for minimizing the impact of this annual rate increase.
Why do Carriers Utilize a General Rate Increase (GRI)?
Have you ever wondered why carriers implement a GRI in the first place?The first GRI was established several decades ago as an easy way to balance profits and loss for carriers. Before the days of internet, computers, and improvements within the supply chain, there were several elements that impacted the supply and availability of carriers. This would cause drastic price increases or decreases throughout the year, which drove accountants and shippers crazy. Their solution was to keep shipping rates consistent throughout the year, with activating a general rate increase based on the growth within the industry.
Today GRI's are used as a cost of business increase, similar in many ways to inflation, rising costs of goods in retail, or supplies and raw materials in manufacturing. Other contributing factors to the GRI include:
- Increases in driver wages
- Insurance costs
- Maintenance
- Other operational expenses
One item that will impact this year's GRI is the ELD Mandate, where most carriers have invested millions of dollars to comply with this federal mandate.
There are other factors that impact the general rate increase. Replacing older and outdated equipment has increased significantly in the past three years, including:
- Trucks
- Computers
- Communication systems
- Tracking systems
The integration of up-to-the-minute or satellite tracking technology has become a consumer demand, which impacts the expense costs for carriers – and is another factor that contributes to higher GRI's.
One item that does not factor into the general rate increase is fuel costs. The flux in fuel costs is reflected within a carrier's fuel surcharge, which is typically negotiated with each shipper or customer on an individual basis.
Typically, the bigger carriers—where annual rate hikes are standard practice—will determine their rates first, and in order to stay competitive, other carriers must follow suit. Occasionally, there will be a few outliers, with some setting theirs slightly lower or higher, but the majority will equal that of the larger carriers. Small and medium-sized shippers who do not have contracts in place with the more competitive carriers will experience the greatest impact from GRI's, which could be combatted by working with a 3PL to increase their stance with the carriers.
Who is Impacted Most by General Rate Increases?
The General Rate Increase impacts shippers uniquely. Most shippers who have been customers for years will factor a four to six percent increase each year when establishing their shipping budget. Those who prescribe to this proactive measure are usually not impacted by the GRI. Smaller shippers or inexperienced customers are usually the ones who are caught off-guard initially. However, professional carriers are quite good about communicating upcoming GRI's with all customers – but especially new shippers, to ensure a smooth transition into the next fiscal year.
Carrier themselves pay a big role in how and when GRI's are announced. Generally, large LTL companies are the first to announce their GRI – with smaller carriers and private transportation companies following suit. The great thing about the GRI is that it's consistent throughout the industry; with some minor differences between some carriers for competition.
How to Minimize GRI Impact
As noted above, communication with the carrier is the best way to prepare for general rate increases in the logistics and transportation industry. Most smaller and medium-sized companies who are getting started with LTL and FTL carriers would find it beneficial to contact their carrier's directly to ask them about upcoming GRI's and how to factor the increase in shipping rates into their budgets. Another way to minimize the impact of general rate increases is to audit your freight invoices, review shipping requirements, and determine if there are ways to schedule shipments when rates are generally lower. The best way of minimizing the GRI is to accept it as a cost of goods increase like any other area of business operation and adjust accordingly.
Final Thoughts
The General Rate Increase is a common occurrence in logistics and most industries. By communicating with your carriers, asking as many questions as possible, and clarifying the time in which the GRI will be enacted, you'll minimize problems, save money, and stay on track with your shipping needs.