Understanding Carrier GRIs vs Surcharges: Key Differences and How to Account For Each

A few years ago, carrier general rate increases (GRIs) were a once-annual event and the only time carriers raised their pricing. They remain critical for shippers to know, but they aren’t the only ways carriers increase their revenue anymore. Carrier surcharges are now just as important to know and understand as GRIs, there are way more of them all measured in different ways by different carriers, and they’re constantly evolving.

In this article, we’ll discuss key differences between GRIs and surcharges and what we’re seeing today in the parcel shipping world.

GRIs: An annual increase

Historically, the general rate increase was a big annual event in parcel pricing. Each year, carriers would announce their rate increases, typically expressed as an average percentage, and shippers would brace for impact.

For years, this was the one moment when carriers showed their hand. A 5–6% GRI might signal broad rate inflation, and companies would analyze, forecast, and negotiate accordingly.

While GRIs still happen and still matter, they no longer tell the full story. Over the last several years, the GRI has become just one of many pricing events carriers use to adjust revenue throughout the year. If you only evaluate your spend based on the GRI announcement, you’re missing the rest of the picture.

Surcharges: Constant moving targets

Unlike the once-a-year GRI, surcharges are variable, ongoing, and far more complex. They can and do change at any time, completely dictated by the carriers.

In fact, carriers have learned that flexibility in surcharge management allows them to react quickly to market conditions. They can adjust surcharge levels, expand their effective dates, or even change how the charges are measured.

A recent development that signals where carriers plan to go with surcharges is that they are strategically rebranding what used to be known as “peak surcharges” to “demand surcharges.”

Source: UPS

Looking at an August update from UPS, what they clearly call “demand surcharges” can still be found at the URL “/peaksurcharge” since this fee used to be referred to as a “peak surcharge.”

That’s because when shippers hear “peak” we think of a seasonal change typically from Thanksgiving to Christmas. There is an expectation that sets a time constraint for when this surcharge will not face pushback.

However, “demand surcharges” mean that the carriers can dictate when they see high enough demand to implement those surcharges. This year, we’ve seen peak surcharges start in October widely across the board.

In addition to extending the timeframe when surcharges apply, carriers also have the liberty to change measurement tables. What was once a per-package fee might now depend on zone, service level, or volume profile. Or, what was once considered standard size might now be oversized based on new measurement tables.

Importantly, surcharges are no longer temporary. They are flexible levers carriers pull to manage profitability, and once introduced,  they never go away.

Staying on top of your shipping costs

Carriers continue to give themselves options on how they can generate more revenue on these market changes. The market is now used to seeing a fuel surcharge, but the carriers can continue moving the needle when it comes to what those surcharges actually are. Shippers are also used to seeing additional handling surcharges, but carriers can designate what constitutes as additional handling without shippers batting an eye.

So, in addition to the one-annual GRI, don’t forget to pay attention to the five or six other pricing events that happen throughout the year where carriers impose more increases into the marketplace.

Calculating GRI and surcharge impact

At iDrive Logistics, we suggest taking a holistic approach to measuring your shipping spend. Don’t run your analytics and models only considering GRI, which might be an 8 to 12% increase, while ignoring the other increases that happened after the last GRI was announced.

It’s important to remember that many of these surcharges are a line item, but if carriers change measurement or billing methodology there won’t be any updates in your invoice further than a higher-than-usual cost on that same line item you’re already used to seeing.

What we recommend is to take your shipping data from January to January (so a full year has passed, GRIs and all) and look at the differences. You’ll see not only the GRI impact, but any mid-year increases from surcharges and accessorials. That could show you need to prepare for a 12 to 25% increase rather than an 8 to 12% one.

Having data-backed discussions with carriers

Bring all of this data and more to paint a picture for carriers around your current shipping spend. Showing them you’ve seen a 25% increase, indicating you should expect similar things to come (rather than just the GRI claims) makes for a more impactful discussion.

Use this to negotiate or renegotiate your carrier contracts to your benefit, particularly now that you know what to expect and where additional charges are likely coming from.

Understand GRIs vs surcharges and prepare for both accordingly

The GRI gives carriers a baseline for annual pricing adjustments, but carriers use surcharges for the ongoing flexibility to respond to market shifts. Fortunately, these changes also give shippers the opportunity to have meaningful discussions with those carrier partners.

As carriers continue to rebrand and recalibrate their surcharge models, shippers need to adapt their analytics, procurement strategies, and contract reviews to capture the full cost picture.

If you’d like help understanding how carrier GRIs and surcharges have affected your shipping costs (and will continue to do so), reach out to iDrive Logistics.