As fall is quickly approaching it is a reminder of two commonalities this time of year: 1) e-commerce business trending up due to seasonality and the approaching holiday season, 2) carriers instituting peak surcharges. The former has been occurring for decades. The latter is a newer trend that is becoming more widespread and could be especially impactful this year due to COVID-19 + record e-commerce volume impacts. This quick guide takes a look at the surcharges that have recently been announced by the carriers and what you can do to mitigate the impact.
Big Brown is back in town and leading the charge as they always do when it comes to surcharges. I wish I loved anything as much as UPS loves surcharges. They have returning and increased charges for additional handling, large package, and over maximum limits. New this year are charges for SurePost and Residential services that are triggered based on volume thresholds. Interesting to note these peak charges last about two weeks longer when compared to last year. Also, Additional Handling starts nearly two months earlier than 2019. Just more examples of carriers squeezing businesses continuously. Fast Forward to 2030, Lessgistics sees a world where peak will be defined as March-December.
The Residential and SurePost fees are designed to be most impactful to large shippers who are likely over their volumes in Q1 2020 (specifically February). To ‘qualify’ for these additional service charges businesses must be shipping at least 25,000 packages per week across all the services. If a business meets this threshold the additional charges are applicable to any volume over the weekly average of February 2020. For shippers where the volume is <80% of February’s weekly average, then UPS will use September volume as the comparison point. Once a business hits the threshold once in the peak period the fees are applicable for the remainder of said peak period!
Not to be outdone, FedEx is following in line as they always seem to do. Notice how eerily similar the names and fees are. Must just be a coincidence; certainly not another example of duopolistic market control. FedEx despises oversize packages slightly more than UPS does so their fees are higher in those areas. FedEx’s 2020 peak periods start and end one day later than UPS.
For an extra 2020 treat, FedEx decided to double the additional SmartPost fee during Cyber Shopping Week. Different from UPS, the SmartPost fees are not triggered by thresholds. They are just applicable during the peak period times. This is assumed to be because FedEx has been working to get all of their SmartPost volume handled internally as they have recently ended their USPS partnership. The fees for the other residential delivery services are threshold triggered similarly to UPS.
New to the party this year is USPS. Due to increased expenses and record e-commerce volumes the United States Postal Service announced approved price increases for commercial package services. These fees will run from October 18th – December 27th. The fees are for all competitive domestic parcel services that USPS offers.
As normal, USPS has much more reasonable surcharges than UPS and FedEx. They also offer a more true and reasonable peak period. Finally, they are not threshold based so it is easy to figure out exactly what your impact will be. For small and light packages, USPS is still the best bet in shipping.
What Can Shippers Do?
Now that the peak surcharges have been announced shippers can start strategizing to fully understand the impact and how to offset the increases. If you are currently shipping with FedEx or UPS you will have some arithmetic to do to find out what your potential peak impact will be. If you are a large shipper it is very possible you are looking at a 6 or 7-digit impact. Since this is a carrier market it is unlikely you can ‘negotiate out’ these peak surcharges. However, you can find other areas that affect all packages such as residential and fuel surcharges to help offset the increase. You can push for these additional discounts to follow the same peak period for the holiday charges. Also, if you don’t charge for shipping then you may want to consider it. If you do charge for shipping, you may want to consider raising it for peak. The days of free shipping everywhere are certainly not sustainable in this new world.
Another option would be to move your volume from FedEx and UPS to USPS or even a regional carrier. These options will be slower but cheaper. After the peak periods end for each carrier it is fair to assume the COVID-19 surcharges will be returning. Again, we are in a carrier market. They are getting slammed with more volume than they can handle. When there is more demand than supply a way to even out the curve is to raise price. FedEx and UPS will continue to have leverage in the short-term, but long-term they are going to continue to out-price themselves with all of these additional fees. Amazon is their biggest direct threat competitor. Consolidation in the regional carrier market is possible, as well.
Do you need help navigating all of these peak charges? Reach out to Lessgistics for a free evaluation today.