How Changing Surcharge Definitions Affect Parcel Shippers

Parcel Surcharge Defintion

Parcel carriers announce general rate increases every year. Shippers are used to that, and most expect their shipment costs to increase by about 5 percent every year in line with GRIs.

But where carriers make their money—and where shippers can be taken by surprise—is in accessorial surcharges. About 35 percent of companies’ overall shipping spend is eaten up by surcharges, according to Reveel’s research.

Accessorial fees can be modified throughout the year, often without warning. They can also rise very quickly: UPS boosted its additional handling surcharge by 75 percent in 2018. Finally, surcharges are challenging because they affect every company differently. Large package fees might not affect a shipper of small parcels, but a modification in dimensional weight pricing might.

Shippers can’t prevent parcel carriers from making these sudden, seemingly unfair surcharge rate changes. But they can prepare for them by knowing their shipping data and responding quickly to protect profitability.

How Surcharges Change: Examining FedEx in 2018

For example, let’s explore the fee changes FedEx announced on January 1 of this year:

  • An immediate increase in minimum billable weight for FedEx Express tube packaging, from 7 pounds to 9 pounds
  • Changes in the measurements of packages that required additional handling and oversize charges from 48 inches and 96 inches on the longest side, down from 60 inches and 119 inches, respectively
  • The addition of a third-party surcharge
  • A modification of the Freight Over Length Surcharge to apply to shipments measuring between 8 feet and 12 feet

If your company relied on FedEx Express tube packaging for a product weighing 8 pounds, you would pay the rate for 9 pounds.

If you shipped products that were between 4 and 5 feet on their longest side, those parcels would now require additional handling surcharges. A product between 8 and 9 feet would now carry an oversize charge. And some of those packages might carry Freight Over Length charges as well.

It’s not uncommon for companies to design their packaging around carrier requirements. For example, a manufacturer of assemble-at-home furniture may have used a 5-foot box for the component parts of a bookcase. Now, that company would need to design 4-foot packaging which is an expense in itself, or take on additional handling surcharges.

For the record: FedEx was hardly alone in these hefty rate increases. UPS hiked its large package surcharge from $10 to $80 to $90 in its 2018 rate increases.

Related: Comparing Shipping Rates in 2018: FedEx vs. UPS vs. DHL vs. USPS

Dealing with Sudden Surcharge Increases

Shipping-based businesses simply can’t anticipate what surcharge changes their carriers might make, or when they’ll hit. The best they can do is be well-positioned to respond to them.

The first preparatory step companies can take is knowing their shipping profile inside and out. That means knowing exactly how big their packages are, how much they weigh, how many of each they ship every month and where they go—whether they reach commercial or residential customers as well as how far they travel for delivery.

When accessorial fee increases hit, companies with robust data can basically plug and play. To use the FedEx example, how many packages measure between 4 and 5 feet on their longest side? How many used FedEx Express tube packaging? Of those, did any weigh between 7 and 9 pounds?

Performing these calculations reveals how significantly surcharge increases are likely to eat into a company’s bottom line. If there are no packages between 4 and 5 feet, it won’t be impacted.

But if a flagship product will now carry an additional handling surcharge, the company will have to start paying $12 per parcel which could easily be larger than the profit margin on that product. In that case, the shipper will have to find a new shipping method.

Use Data to Evaluate Your Carrier Contract

Executives who know their shipping data well or who can perform the calculations described above, can quickly identify which surcharge increases will most impact their business’s shipping costs.

If your carrier suddenly adds or changes a fee that will significantly affect your shipping charges it may be time to renegotiate your contract.

Remember, carrier contracts work both ways. Shippers need transportation to move parcels, and often need a national carrier to do it. But carriers need to retain clients. They are usually willing to make some exceptions to do so. Carriers have dozens of different surcharges. They are often willing to waive two or three to keep a shipper’s contract in place.

Related: Your Guide to Negotiating Better Shipping Rates 

If a fee change significantly impacts your company’s business, it may be a good time to evaluate competing carriers. FedEx and UPS tend to follow one another’s lead, but they do not move in lockstep. It may be several years before one fee matches another, and switching carriers could save you thousands of dollars in the meantime.

If you don’t have the robust shipment data you need to understand how surcharge modifications affect your company, Reveel can help you implement the tools to collect and analyze your shipping data. And if you decide to renegotiate your contract whether it is this year or in the future, we can help you prepare.

Our team has a proven track record of saving our partners 15 to 20 percent on shipping. Next time your carrier suddenly modifies surcharges, reach out to see how we can help you save.

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