Analyzing FedEx and UPS 2018 Holiday Season Surcharge Strategies
For the 2018 peak shipping season, FedEx and UPS aren’t deviating far from the strategy they established for holiday last year.
That’s a sign results were too good in 2017 (their earnings reports continue to bear this out) and pushback from customers wasn’t enough for either parcel carrier to backtrack. Online and non-store sales were up 11.5% to $138.4 billion during the 2017 holiday season, according to NRF, a boon for the carriers as they handled record volumes.
In fact, this year expenses for shippers will go up, with some of the increases particularly audacious.
Here’s a closer look at what to expect this holiday season.
FedEx: Don’t Ignore the September Surprise
Last week, FedEx announced that it again won’t apply peak season surcharges to most residential deliveries, except for packages that are oversized, unauthorized, or require additional handling between Nov. 19 and Dec. 24.
But the penalties will be costly if your packages are flagged, especially as the carrier got creative by sizably increasing two of the charges as of Sept. 3 (and well ahead of the holidays) – a clever public relations approach that could work in FedEx’s favor yet again.
- Oversize Charge: An increase of $2.50 (10%) from the 2017 peak season. When combined with the normal $80 Oversize Charge, the total surcharge becomes $107.50.
- Ground Unauthorized Package Charge: On paper, FedEx appears generous; what was a $300 charge during the 2017 holiday season is now just $150. But as of Sept. 3, a $115 penalty last year – and $300 for most of 2018 – becomes $675. Your new peak season total is $825, almost doubling the $415 impact of last year.
- Additional Handling Surcharge: Couple an increase of almost 7% over last year with the bump from $12 to $20 effective Sept. 3, and what was a $14 surcharge in 2017 now is $23.20.
The rationale for the September increases, per FedEx’s rates site: “FedEx continues to experience strong demand for transportation of larger and heavier packages. This increase reflects our commitment to continually invest in our business and responsibly manage capacity through our network to maintain outstanding service for these larger packages.”
If 2018 is anything like last year, FedEx could again win the peak season PR battle and wring more fees from the average shipper than UPS’ Peak Surcharge does. In the side-by-side comparisons in the tables that accompany this post, FedEx’s Additional Handling and Ground Unauthorized Package charges end up being more expensive than analogous surcharges applied by UPS.
Speaking of UPS…
UPS: More of the Same, With a Twist
A year after implementing peak surcharges for domestic residential deliveries, UPS didn’t bother with suspense and instead opted to formalize its peak surcharges – effective certain weeks between Nov. 18-Dec. 22 – when it released its 2018 rates last winter.
But UPS did schedule mid-year increases to three surcharges that become even more expensive during the holidays. Large Packages and Over Maximum Limits peak surcharges are back, while UPS is following FedEx’s lead by implementing added fees for Additional Handling this year.
- Large Packages: Following a $10 increase to $90 in July, the peak season fee jumps from $24 to $26.20. A Large Package will cost $116.20, about 9% higher than FedEx’s comparable Oversize Charge.
- Over Maximum Limits: Like FedEx did with Ground Unauthorized Packages, UPS dropped the peak season cost. It’s now $165 instead of $249. But when coupled with the June increase to $650, UPS is set to charge 63% more – $815 – than the same period in 2017.
- Additional Handling Packages: This was so profitable for FedEx last year – it was estimated to affect 10% of packages – that UPS has jumped onboard in 2018. When the $3.15 peak surcharge rate is added to the $19 fee effective July 8, the total cost is $22.15 per package. Still, that’s more than a dollar less than FedEx.
As their volumes increase during the holidays, shippers also become more likely to face the penalties of the Shipping Charge Corrections Audit Fee UPS established June 4. Data analysis by VeriShip found that 54% of UPS shippers saw the fee applied during the first five weeks it was in effect.
As annual rate increase announcements are likely to come within weeks, this time of year provides the perfect storm of complexity and distraction for shippers trying to keep a handle on their expenses and their budgets as the busiest time of year approaches – and it’s all the more exacerbated by the recent surcharge increases and audit fee applications FedEx and UPS have rolled out.
Get a handle on it now. Contact VeriShip to prepare for these coming impacts.
Andrew Brueckner is VeriShip’s Chief Customer Officer. Backed by data scientists, 10+ years of benchmarking, and the industry’s only simulation engine, Andy and his team work with shippers to understand and optimize their FedEx and UPS contracts and carrier relationships.