The Grace Period Discount is an incentive offered by UPS and FedEx that, for a pre-specified number of weeks, will take the place of the earned discount. This period of “Grace” allows the shipper to maintain a static discount for a time, before a new earned discount is calculated.
The Grace discount comes into effect when one of two things happen:
1) The shipper signs a new carrier agreement.
2) The shipper switches from one carrier to another.
To understand the Grace Discount, we need to understand the other discounts a package can receive. When calculating the total discount for a package you add the Base Discount + the Earned Discount. The Base Discount is static and does change with package volume fluctuation. The Earned Discount, by definition, is “earned” by the shipper, for qualifying for certain discounts based on spend.
The Earned Discount is calculated by taking the most recent 52 weeks of shipping invoices, and summing the gross transportation charges. Each new week, the 53rd week drops off of the equation, resulting in a new gross charge value for the previous 52 weeks. UPS and FedEx will publish your rolling 52-week gross transportation charges on every invoice. Then, each carrier agreement will have a chart to show what earned discount you receive compared to your rolling gross charges.
Because businesses can be seasonal, or experience times of unforeseen volatility (such as COVID-19), it is important to keep a close eye on your rolling gross charges, because that directly correlates to what discounts you receive on your packages.
The Grace Discount comes into play when the 52-week rolling gross charges could be much different than previous (such as a new agreement put in place), or when the volume is unknown (such as a switch from UPS to FedEx, or vice versa). The Grace Period provides a number of weeks (typically between 4-16) where the shipper can “ramp up” their volume, and then a new earned discount can be calculated. It is especially important for seasonal companies, who want to ensure their discounts remain locked during their busiest weeks. The savviest shippers will negotiate new agreements just before peak volumes so they can lock-in in their discount for 1-4 months.
