For Schooley Mitchell franchisees, small package shipping (SPS) and less-than-truckload (LTL) represent a critical expense reduction category. Shipping is a recurring expense that requires ongoing optimization as business needs evolve. The shipping industry is characterized by annual rate increases, complex pricing agreements, and a lack of transparency that leaves most organizations overpaying by 15-30%—often without even knowing it. And with overall shipping volume increasing year over year, shipping vendors have invested in more trucks, more drivers, more sorting facilities, and increased infrastructure to keep up with the demand – passing the costs on to their customers. This means that for many of our clients, even if their shipping volume stays consistent, see a significant rate increase every year.
Key Findings
- Massive Market Scale: The U.S. parcel shipping market exceeds $150 billion annually, with LTL freight adding another $70 billion. E-commerce growth has driven parcel volume up by over 40% in the past five years.
- Guaranteed Rate Increases: Major carriers like FedEx and UPS implement General Rate Increases (GRIs) of 5.9-6.9% annually, regardless of whether your client’s shipping volume increases, decreases, or remains flat.
- Hidden Surcharges Epidemic: Accessorial charges (residential delivery, fuel surcharges, dimensional weight pricing, address corrections) now account for 25-40% of total shipping costs—yet most businesses never audit these line items.
- Static Agreements in Dynamic Markets: 78% of businesses never renegotiate their shipping contracts, even when their needs change dramatically (new product lines, expanded markets, faster delivery requirements to compete with Amazon Prime).
- Dimensional Weight Penalty: Since 2015, carriers have applied “DIM weight” pricing to all packages, meaning a lightweight but bulky box can cost 3-4 times more than expected—yet most shipping agreements don’t reflect optimized DIM factors.
The Complexity of Shipping Pricing
Unlike merchant services or telecom, shipping pricing operates on multi-layered agreements that combine:
- Base Rates: The published tariff rates (which almost no one actually pays).
- Discount Percentages: Negotiated discounts off the base rates (often misleading).
- Accessorial Fees: Over 150 potential surcharges that can negate any discount.
- Fuel Surcharges: Variable weekly adjustments tied to diesel prices, often with inflated calculation methods.
- Minimum Charges: Hidden thresholds that penalize small shipments.
For Schooley Mitchell, the value lies in being the independent expert who can decode multi-page invoices, benchmark against industry standards, and identify where carriers are overcharging through accessorial fees and outdated agreement terms.
The "Set It and Forget It" Trap
Most organizations negotiate a shipping agreement once—often when they first start shipping in volume—and then never revisit it. Meanwhile, their business evolves:
- Speed Requirements Change: To compete with Amazon’s 2-day delivery expectations, they need Next Day or 2nd Day Air, but their contract doesn’t reflect the volume discounts they now deserve.
- Product Line Expansion: They start shipping a new product line with different dimensions, triggering DIM weight penalties they didn’t account for.
- Geographic Expansion: They enter new markets, incurring hefty zone charges and cross-border fees that weren’t in the original agreement.
- Volume Shifts: Their shipping volume doubles, but their carrier never proactively offers better rates—because they don’t have to.
This is where Schooley Mitchell creates immense value: we audit not just the current contract, but the mismatch between the contract and the client’s actual shipping profile.
The Annual Rate Increase Reality
Here’s a critical talking point for franchisees: even if your client ships the exact same number of packages to the exact same destinations, their shipping costs will increase 5.9-6.9% every January. This is not negotiable—it’s baked into every contract. However, what is negotiable is:
- Whether accessorial fees increase at the same rate (they don’t have to).
- Whether new surcharges apply (carriers often “grandfather” protections for savvy negotiators).
- Whether volume tier thresholds adjust to reflect inflation (they often don’t, meaning clients slip into worse pricing brackets).
Without ongoing oversight, businesses experience “rate creep” that compounds annually, resulting in 30-50% higher costs over a 5-year period.
The LTL Freight Opportunity
While small package shipping (FedEx, UPS, DHL) dominates the conversation, LTL freight is equally lucrative for Schooley Mitchell. LTL pricing is even more confusing:
- Class-Based Pricing: Freight is categorized into 18 classes based on density, value, and handling—most shippers don’t even know their freight class.
- Accessorial Fees Galore: Liftgate fees, inside delivery, residential delivery, reweigh fees, and reclassification charges can double the base cost.
- Carrier Capacity Constraints: Unlike parcel, LTL capacity is finite, leading to wildly inconsistent pricing. Businesses that don’t renegotiate annually get stuck with inflated rates.
The Opportunity: Optimization & Ongoing Management
Schooley Mitchell can provide value in three critical phases:
- Initial Audit & Negotiation: Analyze current contracts, benchmark against industry standards, and negotiate new agreements that reflect the client’s actual shipping profile (dimensions, zones, speed, volume).
- Accessorial Reduction: Identify recurring unnecessary fees (e.g., address correction fees that could be prevented with better address validation software).
- Ongoing Monitoring: Since shipping needs evolve and carriers implement rate increases annually, this becomes a recurring service category—providing you with long-term client retention and predictable revenue.
- Billing Error recovery: If a shipping vendor is late with a package that is guaranteed to arrive by 9am tomorrow, the shipper is eligible for a refund. But they need to apply for that refund within 15 days – we do that on behalf of all our clients.
While this article dives deep into the intricacies of shipping pricing—dimensional weight calculations, accessorial fee structures, LTL freight classifications, and carrier contract nuances—rest assured that you don’t need to master these complexities.
Our corporate analysts are the shipping experts who handle the technical analysis: auditing invoices, benchmarking contracts, negotiating with carriers, and recovering refunds for clients. Your role as a franchisee is to understand why shipping is such a critical cost category and to articulate the value we deliver. Every business that ships products is facing guaranteed annual rate increases, hidden surcharges, and contracts that no longer reflect their operational reality.
By partnering with Schooley Mitchell, clients gain a strategic advisor who ensures their shipping expenses align with their business needs—whether they’re competing with Amazon’s delivery speeds, expanding into new markets, or simply trying to prevent 6% annual cost creep. This ongoing optimization not only saves clients money but also positions you as an indispensable partner who helps them address their constant shipping needs. That’s why shipping services—both small package and LTL freight— is such a valuable cost category for us to analyze.