Surcharges and Accessorials: What You Don’t Know Can Hurt You
How does a package with a sticker price of $15 end up costing you $37? It’s the same way my “$49 per month” phone plan becomes $72 per month. And the same way a $99 airline ticket ends up costing $127. Or the way a concert ticket costs 14% more on the invoice than it did on the website used to buy it. It’s the hidden fees!
They’re everywhere: baggage fees, processing fees, restocking fees, convenience fees. If I knew I was going to pay a convenience fee to begin with, I probably wouldn’t have thought it was so convenient!
Your parcel shipping carriers have figured this out, too. Their fees come in the form of accessorial fees and surcharges that are tacked onto your package’s total landed cost—after the package has been shipped. The best definition of an accessorial is “the extra services ordered for the shipment or extra items required to ensure delivery.”
Remember when paying the published rate based off the package weight, zone and the service type was enough to “ensure delivery?”
These tacked-on fees and accessorials become the story of death by a thousand cuts. They’re only a few percentage points at a time, but those little fees add up. Just how much do they add up? Most shippers can’t answer that question, even though the data is included in every invoice. The answer is, on average, a whopping 31% of a carrier’s invoice is made up for additional accessorial fees and surcharges. That’s no small amount and they’re not going anywhere any time soon. So the question becomes: what can you, as a parcel shipper, do about it?
The First Step Is Admitting You Have a Problem
In the world of parcel shipping, 31% is a pretty big problem. Surcharges were born out of the seemingly innocuous practice of adding a fuel surcharge when fuel prices were rising. They have grown to include dimensional weight surcharges for oversized packages and penalizing companies who ship large lightweight products. This year, UPS® and FedEx® are introducing seasonal surcharges, which will impact shippers that have seasonal businesses—most retailers. These new surcharges from both UPS and FedEx will only add to the increasing cost of parcel shipping, with businesses either passing those costs along, or absorbing them and taking the accompanying hit to profits.
The fact is, just like the telephone companies, airlines, and everyone else, parcel carriers are making a lot of money from accessorial fees—and they’re not going away. In fact, the list is only growing. Once you accept that, you’re ready to start taking action.
What Can You Do About It?
Now that you’ve admitted there’s a problem, you’re ready to start taking control of the situation and driving improvement. The process starts with uncovering and measuring all of the different areas accessorials are affecting your spend. Once you’ve quantified the scope of the impact, you’ll be able to identify which accessorials are avoidable and which aren’t. The key is to control or eliminate the surcharges which are under your control and then work with your carrier to negotiate lower rates on the ones you can’t.
- Measure and manage the impact. You can’t manage what you can’t measure, so understanding your total landed cost on a per-package basis is a key performance indicator (KPI) that every business should be monitoring weekly. In terms of accessorials, here are some things you need to know:
- What percentage of your cost per package is made up of accessorials?
- How has that trended over time? Is that percentage trending higher? Have there been any recent spikes or unexpected drops?
- Which specific accessorials are having the largest impact, both in terms of number of occurrences and the dollars spent?
- Are there specific service types that are being affected more than others? Specific accounts?
- Implement operational changes. Once you know the total impact that accessorials are having on your parcel spend, you can begin to take specific action to reduce or eliminate overspend. With “initiative-driven changes,” you pick an accessorial or a surcharge impacting your cost per package, use the current impact per package as your starting point, and set a goal to reduce that figure by X% over the next quarter. Having the data upfront allows you to set a smart goal with a measurable definition of success.
- Hire a parcel auditing company to recover refunds on the invalid accessorials
- Utilize address verification software
- Use appropriately sized boxes
- Use USPS or similar alternatives for residential deliveries and/or low weight items
- Negotiate with your carrier to lower your fees. There will be some accessorials you just can’t avoid. But that doesn’t mean you have to pay sticker price for them. You can negotiate discounts on your accessorials in the same manner you negotiate discounts on your service rates. And just like those service negotiations, the person with the most data is going to win. Armed with the data you uncovered in Step 1 and monitored in Step 2, you’ll be equipped to sit down with the carrier and negotiate controls around parcel spend. A parcel intelligence platform with a robust, data-driven benchmarking solution can drive you towards an optimized contract, including all surcharges and accessorials appropriate for your level of parcel spend.
Your Path to Continuous Improvement
Remember, it’s not enough to simply implement these changes. You need to continue to monitor these figures to A) determine whether or not you meet your goal, and B) prevent that impact from returning. That’s why a parcel intelligence platform, with a robust data-driven benchmarking solution, is so important. With the right combination of tools and data, you can: identify your weak spots, implement changes to improve them, measure the effectiveness of those changes, and then repeat the process all over again. When done right, it becomes a loop of continuous improvement. And isn’t that what we all should be driving towards?