The cost of shipping continues to rise – making it very challenging for merchants to maintain profit margins in today’s competitive markets. One of the major sources for the rise in shipping costs is the abundance of shipping surcharges imposed by carriers in the parcel shipping and freight industries. Shipping surcharges are tacked onto shipments for a variety of reasons and can add significantly to the cost of shipping goods both domestically and internationally.
The challenges facing merchants are twofold. Shipping surcharges tend to add up quickly yet remain obscure and difficult to discern for merchants that don’t pay particularly close attention to their weekly invoices. Maintaining ongoing oversight over shipping surcharges requires time and extensive knowledge of the shipping industry. Additionally, the way that each carrier applies surcharges varies – which only adds to the amount of information logistics managers need to keep top-of-mind when they are reviewing their invoices.
These factors make being aware of shipping surcharges and keeping track of them over the long–term difficult and time-consuming. In order to shed light on the impact of shipping surcharges, this article will explore what a shipping surcharge is, what different types of surcharges exist, and how they vary by carrier.
We’ll also provide some insight into how merchants can save money on shipping surcharges or even avoid them altogether. This information will prove beneficial for merchants looking to reduce their bottom–line, expand their profit margin, and eliminate paying for needless shipping surcharges.
What Are Shipping Surcharges?
Many merchants may be vaguely aware of what a shipping surcharge is, but may not realize that there are a variety of different surcharges they can be hit with. Gaining a greater understanding of what exactly a shipping surcharge is, and what specific types of shipping surcharges exist on the market can illuminate the extent to which shipping surcharges impact their shipping costs.
Shipping surcharges can appear on invoices as a number of different things, but most often are categorized as a “service fee” or “handling charge”. Regardless of how they are labeled, these fees tacked onto a shipping invoice all represent a shipping surcharge.
At the most basic level, a shipping surcharge is a fee that is added to the base cost of transporting goods. Thus, service fees and handling charges are a vague way of referring to a shipping surcharge.
The wide range of shipping surcharges further lend leads to confusion for merchants and makes it more difficult to assess what their base transportation costs are. Private carriers like FedEx and UPS apply a number of different surcharges to shipments in order to offset transportation costs or additional handling associated with a package. These shipping surcharges can include things like residential delivery fees, signature fees, fees for deliveries outside of normal service areas, and fees for Saturday or weekend delivery.
Typically, private carriers in the parcel shipping and freight industries adjust their shipping surcharge rates on an annual or biannual basis, while fuel surcharges are updated on a weekly basis based on the average weekly prices for diesel and jet fuel. This can lead to unexpected jumps in shipping prices for merchants on a weekly or semi-annual basis. For example, rising fuel prices one week will lead to an increase in fuel surcharges the following week.
In contrast to private carriers, the U.S. Postal Service does not apply shipping surcharges for fuel, Saturday deliveries, or residential deliveries. This important difference between carriers can result in substantial savings for merchants who are selective about their shipping carriers. Merchants must recognize the differences between carriers and weigh the costs versus benefits of diversifying their carrier mix.
If using a private carrier like UPS or FedEx, merchants must stay informed about changes to shipping surcharges on an ongoing basis and apply that knowledge to each shipment. Merchants must determine their carriers’ current shipping surcharge rates and then account for how those surcharges will impact their shipping costs by assessing the weight of their shipments, their delivery areas, and any special handling considerations their shipments require. If merchants fail to pay attention to the way shipping surcharges affect their shipments, they may be paying significantly more for their shipments than necessary – even when more cost-effective options exist.
Types of Shipping Surcharges
The broad spectrum of shipping surcharges that can be applied to shipments can have a substantial impact on shipping costs. At the same time, they can lead to confusion for merchants attempting to calculate how much they are paying for shipping surcharges for each shipment.
Understanding the types of shipping surcharges that appear on your invoices can provide insight into where you can save costs while continuing to maintain timely shipping speeds. The following breakdown of common surcharges in shipping can help merchants make more informed decisions about their shipping needs and avoid any unnecessary shipping costs.
Fuel Surcharges
Fuel surcharges are calculated by private carriers on an ongoing basis and are tied to the market price of fuel. For carriers like FedEx, UPS, and OnTrac ground service fuel surcharges are adjusted weekly based on the weekly published national U.S. on-highway average price for a gallon of diesel fuel. Express/air fuel surcharges for FedEx and UPS are adjusted weekly based on the published national U.S. on-highway average price for a gallon of diesel fuel.
Tracking changes to fuel charges is important because fuel surcharges can lead to a substantial increase in shipping costs for merchants. This stems from that fact that fuel surcharges not only apply to shipments’ base rates, but many of the common surcharges they incur as well. For example, UPS fuel surcharges apply to:
- Peak/Demand Surcharges (which are still in effect)
- Delivery Charges
- Pickup Charges
- Remote/Extended Delivery and Pickup Charges
- Residential Surcharge
- Return Services w/ Pickup
- Saturday Delivery and Pickup
- Signature Required Services
- Additional Handling
- Large Package
- Over Maximum Limits
- Oversize Pallet Handling
Fuel surcharge matrixes are slightly different between UPS and FedEx, which accounts for variations in fuel surcharges between carriers. Gaining a greater understanding of how these surcharges are calculated can illuminate the crucial role that fuel surcharges play in determining ongoing costs.
In order to illustrate this, let’s take a closer look at how two of the major private carriers in the United States calculate their fuel surcharges. Both UPS and FedEx calculate their ground fuel surcharge according to an index reference based on the U.S. Average On-Highway Diesel Fuel Price that can be found here.
UPS fuel surcharges go into effect each Monday, and are calculated from their index reference for fuel charges from the two–weeks prior to the rate change. In contrast, FedEx calculates their ground service fuel surcharges slightly differently by only drawing from the average diesel cost for the previous week. Shippers can find more information about current FedEx fuel surcharges for different services and how they are calculated here, and UPS fuel surcharges here.
Fuel Surcharges: Increases on Increases & Tips for Shippers
Although the fuel surcharge is designed to increase or decrease weekly based on weekly average prices for diesel and jet fuel, FedEx and UPS can adjust their fuel surcharge matrix at their discretion, effective raising the base fuel surcharge. For example, UPS and FedEx both increased their fuel surcharge matrixes for ground and express services in December 2023. UPS increased their ground fuel surcharge matrix twice, totaling 1.25%, and their express fuel surcharge by 1.00%. This meant that instead of incurring a 14.5% fuel surcharge for both ground and express services, shippers would incur a 15.75% and 15.5% surcharge, respectively. Similarly, FedEx increased their matrix by 1.00% for both ground and express services.
Carriers use the fuel surcharge as revenue-generating levers, sometimes contrary to marketplace factors. Those December 2023 fuel surcharge increases? They came admidst declining fuel prices during peak season. Since these fuel surcharge matrix adjustments typically come with only one or two weeks’ notice, they can catch many shippers (and their budgets) off guard.
However, fuel surcharges can be mitigated. Here are four tips:
- Negotiate discounts on fuel: Like other surcharges, the Fuel Surcharge can be negotiated and discounted.
- Negotiate larger base rate and accessorial surcharge discounts: The Fuel Surcharge is applied to your net rates (after discounts are applied). It’s also applied to a number of highly assessed surcharges, such as the Peak/Demand Surcharge, Residential Surcharge, and Additional Handling Surcharge. So, if you’re assessing your accessorial impacts and the fuel surcharge is catching your attention, the place to look is not the FSC itself, but all of the other charges that make the FSC what it is.
- Non-standard Provisions for high-volume shippers: If you’ve got the volume to flex, some strategies you can investigate include:
- A Fuel Surcharge cap
- Negotiating points below the prevailing FSC
- Locking into a date-based FSC table
- Blended rates
- Model some alternative shipping options: USPS products, for example, have no fuel surcharges.
Residential Delivery Surcharge
If you are a shipper that delivers directly to residential destinations, it is important to understand what residential delivery surcharges are and how they are impacting your shipping costs. As the name suggests, residential delivery surcharges are fees that carriers levy for deliveries to residential dwellings.
Carriers assess a surcharge for residential deliveries because of their higher cost-to-serve. This is owed to lower delivery density when delivering to residential addresses as well as the additional cost to carriers from failed delivery attempts, address corrections, and other complications that increase the carriers’ cost to deliver a package that arise less frequently with commercial addresses.
Residential Surcharges: Tips for Shippers
The best way to reduce residential surcharges is to be mindful of different shipping options and carriers that allow you to reduce or even eliminate the surcharge completely. Some carriers, like the USPS and other regional carriers, don’t apply a residential surcharge. Other options include utilizing FedEx Ground Economy or UPS SurePost. Both networks handle the package for the majority of transit before handing it off to USPS for the last mile – eliminating the residential delivery charge for shippers.
Intelligently utilizing alternate shipping networks can allow shippers to avoid the hefty delivery fees that are tied to residential deliveries. These fees are continuing to rise, making this an ongoing avenue of cost-savings for shippers that will only continue to become more important over time.
Oversize Package Surcharge
The oversize package surcharge is applied to shipments that exceed the weight or size thresholds of private carriers. Incurring an oversize package surcharge or additional shipping fees can result in a substantial increase in shipping costs for shippers.
Both UPS and FedEx apply oversize package surcharges when a shipment exceeds either the size or weight thresholds they have set forth. For both carriers, shipments cannot exceed 96″ in length or 130″ in length and girth without incurring the surcharge.
Oversize/large packages are subject to a minimum 90-lb. billable weight and the actual charge is based on the greater of the rounded actual weight and the dimensional weight. Carriers often base delivery charges off of dimensional weight, rather than actual weight, due to the amount of space they occupy. Large, light packages take up more space in a truck, increasing the carriers’ cost to serve.
Oversize Package Surcharges: Tips for Shippers
The most important tip for shippers is to be very mindful of the rates for oversize packages and the thresholds set by the shippers. These rates change frequently, requiring shippers to stay abreast of any rate changes that may impact them.
If shippers frequently ship oversize or large packages, they may be able to leverage rate changes that have a substantial impact on them. For example, shippers that regularly use FedEx for transporting oversize packages may be able to negotiate their contract to reduce handling fees on those packages, resulting in substantial cost savings.
Shippers should also look to optimizing their packaging to reduce the amount of air they’re shipping. Packaging optimizations and reducing the dimensions of shipments can significantly lower shipping costs.
Saturday Surcharges
Saturday deliveries can be excessively expensive for shippers. If you look at our study, you’ll see that Saturday deliveries cost shippers an additional $13.49 per package. Not only do deliveries on Saturdays incur an extra charge, but Saturday Pickup services also resulted in an average increase of $14.95 per package. For shippers that frequently utilize Saturday Delivery and Pickup services, these surcharges represent a critical channel for cost increases.
As the name would imply, Saturday surcharges are applied to deliveries that occur outside of the normal operating week of Monday – Friday. Since customers are increasingly expecting deliveries to occur on Saturdays, shippers must explore alternative avenues of delivery. One of the most common ways to avoid Saturday surcharges is to ship packages via USPS Priority Mail. Priority Mail doesn’t apply a surcharge for Saturday deliveries, which is a boon for shippers that have a desire to meet their customer’s expectations for weekend delivery service.
Other Surcharges To Be Aware Of
Although we’ve explored some of the most common surcharges that shippers see, there are a number of other less common surcharges that can also substantially impact shipment costs. These surcharges include:
Signatures (Adult, Direct, Indirect)
This is a surcharge for packages that require a signature upon delivery. Signature surcharge prices vary depending on the service. Adult signature surcharges average $4.15, while direct signature surcharges average $3.12 and indirect signature surcharges average $1.92.
Address Correction
Address correction surcharges are applied when a shipment has an incomplete or incorrect address that the carrier must seek to correct. The average cost of an address correction surcharge on ground deliveries is $10.83.
Delivery Area Surcharge
A delivery area surcharge is applied for shipments whose destination is outside of the standard delivery area for that network. The average costs of a delivery area surcharge is $2.58.
Declared Value Surcharge
A declared value surcharge is applied to packages whose value exceeds the carrier’s liability limit. Typically this limit is $100.00. The average cost of a declared value surcharge is $10.91.
Weekly Service Charge
The weekly service charge is applied for shippers who have regularly scheduled pickups from a carrier. The average cost of a weekly service charge is $12.65.
Peak Surcharge
Peak surcharges in shipping, applied during high-demand periods like holidays, can be a budget challenge. To reduce their impact, plan ahead, explore alternative carriers and adjust your shipping schedule. Shipping companies announce peak surcharges in advance, allowing you to adapt and manage these additional costs proactively.
Navigating the Complex World of Shipping Surcharges
Understanding shipping surcharges, whether related to fuel prices, residential delivery fees, or oversized packages, is crucial for cost-effective supply chain management. Partnering with experienced shipping carriers can help navigate these complexities and minimize expenses.
How to Avoid or Lessen Shipping Surcharges
There are a couple of different avenues through which shippers can reduce the amount they are spending on shipping surcharges. One of the most impactful things that shippers can do is gain a better understanding of how shipping surcharges are impacting their shipping costs, and what alternatives are available that might have reduced or eliminated surcharges.
By understanding the different shipment options available to them, how carriers calculate and apply surcharges, and which networks are ideal for specific packages, shippers can reduce what they pay in shipping surcharges or avoid them entirely. Shippers can also use this knowledge to renegotiate carrier contracts that are more beneficial to them. For example, a shipper that frequently ships oversized packages may be able to leverage differences in rates and thresholds between carriers to reduce or eliminate the surcharges associated with oversized packages.
In order to avoid overpaying for shipping surcharges, shippers need to be aware of what a shipping surcharge is, what the different types of surcharges are, and how they are calculated. With this base of knowledge, shippers can make more intelligent choices about how their packages are shipped.
One of the main challenges that face shippers is keeping track of this information. Shipping surcharge rates change frequently. Fuel surcharges for private carriers change weekly, while other surcharges are typically updated on an annual or bi-annual basis. Utilizing a third-party logistics provider can help businesses itemize their shipments, accounting for each shipping detail and supporting a data-driven approach to their shipping logistics.
By combining detailed shipment analysis with other tactics to reduce shipping surcharges, like renegotiating contracts with carriers, parcel and freight shippers can reduce their shipping expenses and, consequently, their bottom–line.
