Peak season surcharges began in 2017 as a way for carriers to mitigate some of the costs during the heavy shipping season. Packages that require extra handling (i.e. additional handling, large package/oversize and over maximum limits/unauthorized package) that get pushed into the carriers’ network creates less efficiency, therefore carriers seem to penalize shippers even more during the holiday season. Fortunately for shippers, both FedEx and UPS have announced there will be no additional residential peak surcharges this year; however, there are still three surcharges to keep in mind this peak season – peak additional handling, peak large package or oversize, and peak over maximum limits or unauthorized package. These charges are in addition to the original surcharges and range anywhere from an additional $3.60 to $435.00 per package. Below are some tips to help make peak season less painful, specifically as it pertains to peak season surcharges.
Shippers should always plan for annual cost increases, but there are ways to mitigate these effects. Let’s categorize the price of packages into five elements: contract, service/mode, zone, weight, and accessorial surcharges. Shippers should evaluate optimization opportunities with these five elements:
Budget for them.
Estimate the additional cost these surcharges will tack on and make sure they are included in your budget. Remember to factor in year-over-year growth, as well as the price increases, of these surcharges. Comprehensive understanding of your package profile and customer profile are key to predicting packages that may receive peak season surcharges, especially when thresholds change year-to-year. For example, FedEx has announced a change in additional handling for 2020 where packages 50 lbs. (previously 70 lbs.) and more will receive an additional handling surcharge. This means that shippers will not be able to simply look at the packages that received the surcharge in 2019 to determine the impact for 2020. While this tip does not necessarily provide cost savings, it does help reduce the chance of being blindsided by surcharges when peak season arrives. A shipper with a firm understanding of their parcel network and peak season shipping needs will be better equipped to estimate unexpected or changing peak surcharges, thereby reducing overall cost.
Make sure your rate shop accounts for peak season surcharges.
If you are a dual shipper (meaning you ship with both FedEx and UPS), remember to include these additional charges in your transportation management system (TMS) or warehouse management system (WMS) rate shop. This year, FedEx peak surcharges are higher than UPS’s, so there could be cost avoidance alone in shipping larger packages with UPS vs. FedEx depending on carrier contracts.
Consider utilizing regional carriers.
Most regional carriers do not assess peak season surcharges, meaning there is a savings opportunity when switching larger packages to regional carriers in areas where possible. There may also be additional benefits in on time delivery and transit time when switching to these smaller carriers. Before attempting, make sure your current carrier contract allows for flexibility to divert shipments to other carriers.
Reduce peak surcharges costs by offering in store pickup to customers.
For larger packages, consider offering a discount to customers for picking up in store, for additional cost savings utilize inventory already in stores if possible. If the inventory is not at a store, fulfill the store via truckload or LTL to avoid additional surcharges. There may also be some savings in bundling packages shipping to stores by shipping hundredweight.
Avoid shipping packages that receive package handling charges via parcel where applicable.
Consider using an LTL last mile delivery option to mitigate these costs. This could be an option for customers that prefer delivery of package to their home. Depending on contracted rates with the LTL provider, additional cost savings might be found in packages that receive over maximum limits surcharges.
Negotiate peak surcharge discounts or waivers.
The best way to avoid these extra dollars is to go straight to the carriers and negotiate to reduce or waive these fees. Keep in mind that discounts applicable to these surcharges do not apply to additional peak charges unless explicitly listed. During the past two peaks, there have been cases where FedEx and UPS waivers have been offered to some shippers if they agreed to provide a forecast of peak volume and take a penalty for missing the forecast. This could be an option if you are a shipper that has access to good historical data and can predict how many packages are shipped daily during peak. If you have a parcel freight auditor, they may be able to aid in modeling or getting historical data.
Overall there are several different ways to avoid or reduce peak season surcharges. This list is not exhaustive but hits on a handful of ways to make the extra cost less painful. Overall, it’s important to budget for additional peak cost (even when it may be uncertain), to creatively look for ways to save via alternative package delivery to customers, and ultimately see if peak season surcharges can be reduced or waived via straight negotiation with carriers.