By Mitch Kinek

Category: Logistics

Topic: Freight

General Rate Increases (GRI) in Shipping

General Rate Increases in Shipping

General Rate Increases (GRI) is a raise in costs on the base rate of freight costs by carriers, regardless of the class or additional services. Carriers will implement GRIs during periods of increasing costs to help the bottom line.

Are General Rate Increases Annual?

Generally, GRIs are placed at an annual anniversary to a known contract. However, the anniversary date and timing of GRIs depends solely on the carrier. Here are some reasons for a carrier to review and implement a General Rate Increase:

Reasons a Carrier would Implement a GRI

A carrier implements a GRI when the cost to service freight rises. The increase is to help offset costs associated with shipping.

Rising Costs to Operate

Carriers face a ton of variable costs involved with moving shipments. Any factor that raises the costs needs to be offset to make a profit. Costs such as fuel costs, labor, maintenance, need for equipment, and much more help play a role in this factor.

A great example of this is the recent UPS Contract Labor Negotiations in 2023. A rise in labor costs needs forces carriers to raise rates to be profitable.

Low Supply, High Demand

If there are more shipments than ability to serve, then the carrier may raise costs to service. This practice is to help offset rising demand and help carriers if investment in additional resources is needed.

Carriers strategically initiate general rate increases due to various factors, including rising costs due to inflation, increased wages for drivers, maintenance expenses for equipment, and the discovery of additional services required to handle shippers’ freight.

Revealed Cost to Service

During initial negotiations of contracts, a carrier may not realize all the costs to service a shipper. Factors like proper handling, loading / unloading times, additional services, and much more may force a carrier to raise costs.

Why are LTL Carriers having GRIs while Truckload Rates are Dropping?

A great question in the timing of the freight market in 2024. While Truckload Rates are sensitive to market conditions, the LTL environment is not as sensitive or coincide with Truckload Rates. The LTL market has a higher barrier to entry and fewer companies hold market share, generally keeping prices higher than Truckload Carriers.

While not being as sensitive to market conditions is a valid reason, there is another factor taking place in this point in time. LTL Carriers continue with GRIs, regardless of the state of freight markets, due to a key player fall outs and rising costs to operate.

With the fall of Yellow Freight, LTL Carriers acquired significant business volumes, forcing carriers to invest in more equipment and terminal space. Gladly, the additional equipment and terminal space is in the works from Yellow Freights network. However, it will take time to implement, and carriers continue course of GRIs for the time being.

How does a Shipper Control General Rate Increases?

While GRIs are unavoidable per carrier, a shipper may be able to mitigate costs. Shifting freight may provide temporary relief of General Rate Increases but can be costly to source.

Partnering with a Third-Party Logistics Provider, like TLI, helps a shipper gain access to more carriers, with less onboarding costs. Flexibility to switch between carriers help to mitigate costs for specific shipments.

How does a Shipper Control GRIs?

TLI offers services tailored to help shippers mitigate the impact of LTL GRIs, with three distinct examples relevant to various shipper profiles:

  • Utilizing our TMS rating engine: TLI can simulate scenarios to precisely gauge the GRI’s impact on your freight expenditure. By analyzing historical shipments under the new carrier GRI contract, you’ll have a clear understanding of the anticipated costs.
  • Through Load Optimization: In our dynamic rating engine, we ensure that freight carriers can opt out of loads if the GRI renders them no longer the least cost provider, thus maintaining cost efficiency.
  • Customized RFP (Request for Proposal): Depending on your freight spend, a custom transportation RFP may help to mitigate additional costs by building a custom shipper profile. By compiling historical data and service needs, TLI will negotiate rates and services to help mitigate costs.

Additionally, we offer a fourth bonus option: staggering custom contracts. This involves negotiating with primary national and regional carriers, then revisiting negotiations six months later to ensure a diverse range of market pricing. This strategy provides a contingency plan, ensuring stable pricing even if a primary national LTL carrier enforces a sudden GRI.