The COVID-19 pandemic has changed a lot for shippers, and here’s yet another development to add to the list: peak surcharges.
Peak surcharges, imposed during periods of high shipping demand, typically are reserved for holiday periods. But with online shopping at an all-time high (up 92.7% in May), UPS and FedEx have implemented new surcharges to offset their costs to deliver the rapidly increasing volume of residential and large packages in their systems.
These eCommerce shippers are going to feel the biggest impact of the new surcharges, especially those who ship food and beverage, hobby-related items, and self-care/health care supplies. But the pandemic is driving sales of all kinds of products, throwing many businesses for a loop.
It can be overwhelming when new surcharges come along, so let’s sort out all the details.
What types of shipments do the new peak surcharges affect?
Both UPS and FedEx are targeting residential deliveries, large items, and last-mile delivery through the USPS — and most of the new surcharges are directed at shippers who are seeing increased volume.
For instance, the FedEx peak residential surcharge only applies to customers who ship 40,000 residential packages in a given week and whose volume in that same week exceeds 120% of their average weekly volume in February 2020. (Get more detail.)
Similarly, UPS applies the peak SurePost and residential charges to customers whose combined volume of ground residential and SurePost packages in a given week is greater than their average weekly volume from February by more than 25,000 packages. And once that threshold has been reached, the surcharges will apply to shipments in any week that volume exceeds 110% of the February average. The UPS peak large package surcharge when a customer’s volume of large packages exceeds 500. (Get more detail.)
|FedEx 2020 Peak Surcharges||Cost per package|
|Temporary Surcharge (SmartPost)||$.40|
|Peak — Oversize Charge (Express and Ground)||$30|
|Peak — Residential Delivery Charge (Express and Ground)||$.30|
|UPS 2020 Peak Surcharges||Cost per package|
|Peak — UPS SurePost||$.30|
|Peak — Large Package (All Service Levels)||$31.45|
|Peak — UPS Ground Residential||$.30|
Yikes. Are you confused yet?
This is why we won’t ever stop telling you how important it is to know your own data. Without clear information about your average weekly volume for particular package types — and what they were in February — how will you know if these new peak surcharges apply to your shipments? Or how hard it will hit your shipping budget if they do apply?
How long will these peak surcharges continue?
This move was somewhat unprecedented, as historically the surcharges have been specific to holidays. However, given the carriers’ always-keen eyes on yield management, it shouldn’t have shocked so many.
The real surprise was the fast turnaround from announcing the surcharge to implementing the surcharges. These rate increases left shippers with no time to plan. Fortunately, I suspect most of the surcharges are temporary, as the volume surge (especially residential volume) will decrease as the country continues to re-open.
How should you handle these surcharges?
The peak surcharges target high-volume shippers and shippers with large items. However, FedEx goes one step further and impacts all SmartPost shipments. Immediately, you’ll have to absorb the increased costs, but over the long term, you’ll need to watch your data and evaluate whether you can continue to do that or whether you should pass those costs to your customers. I wouldn’t advise deviating from free shipping, but more likely you’ll have to consider incorporating these increased surcharges into your product cost.
How can you measure the impact of these changes on your shipping costs?
It’s imperative to be able to access and understand your own data. The carriers’ advantage is not just in the duopoly, but in the fact that they can so thoroughly understand their costs and ensure they apply surcharges to offset them. Their pricing is more dynamic than shippers believe it to be.
If you can measure the impact, you can then work to minimize it. Re-negotiating with your current carrier is always an option. To avoid the volume-related peak surcharges, you could steer volumes from one carrier to another. If you’re using only one carrier, it might make sense to bring on the other player — in the worst case, at least you have a back-up option.
Additionally, there are several things you can do once you have an all-encompassing understanding of your carrier costs:
- Do you need to re-peg free shipping? Shifting your minimum could make a big difference.
- Are you making the same mistakes over and over again? (Address correction surcharges, for example.)
- Are you getting hit with DIM-related charges? It could be time to revisit your packaging.
- Is there any unauthorized account usage? This happens far more often than you think.
- Are you manifesting freight, but not actually shipping? It might sound silly, but it’s shockingly easy for this to happen.
- Do you leverage a partner to pay your parcel carriers? If so, can you easily tie back costs via GL coding to ensure you aren’t forgoing any credits?
Get to know your shipping data
Your shipping data is vital to the decisions you make about your business. Whether it’s dealing with surprise peak surcharges or managing broader shipping challenges, you can stop going with your gut and start making informed choices when you know your shipments as well as your carrier does.
That’s a big job, so it makes sense to seek out a solution that provides the data insights and business intelligence you’ll need, along with experts who can help you analyze your invoices and contracts and find what you might miss on your own. Armed with your own data, you’ll be ready for the next surprise carriers bring.
Peak surcharges might have been a surprise, but there are some common, budget-busting surcharges that shouldn’t come as a shock. Want to make sure you’re not missing any? Check out our eBook to learn which surcharges you should watch out for and how to lower them.