Analyzing the FedEx, UPS 2017 Holiday Surcharge Increases
Both FedEx and UPS have announced new, temporary holiday surcharges that will impact shipping costs for e-commerce businesses this holiday season.
In June, UPS announced a new peak season charge applicable during selected weeks in November and December 2017 for U.S. Residential, Large Packages and Packages Over Maximum Limits. The increase means that every residential package shipped at some point during the 2017 holiday season will incur price increases.
Residential packages will increase as follows:
- UPS Next Day Early, UPS Next Day Air, UPS Next Day Air Saver: $.81 per package, Dec. 17-23, 2017
- UPS 2nd Day Air A.M., UPS 2nd Day Air, UPS 3 Day Select: $.97 per package, Dec. 17-23, 2017
- UPS Ground (including Ground with Freight Pricing): $.27 per package, Nov. 19-Dec. 2, 2017 and Dec. 17-23, 2017
- UPS SurePost: $.36 per package, Nov. 19-Dec. 2, 2017 and Dec. 17-23, 2017.
- Residential packages shipped from an origin within the 48 contiguous states to a destination within Alaska, Hawaii or Puerto Rico will increase $2.99 for all services Nov. 19-Dec. 2, 2017 and Dec. 17-23, 2017.
- Large Package Surcharges (length plus girth over 130 inches) will increase an additional $24.00 Nov. 19-Dec. 23, 2017.
- Over Maximum Limits surcharges (actual weight over 150 pounds, single side over 108 inches or over 165 inches in length plus girth) will increase an additional $249.00 Nov. 19-Dec. 23, 2017.
Click here to download peak surcharges dates and amounts directly from the UPS website.
Two months following the UPS announcement, FedEx announced modest increases to only oversized items. The following FedEx surcharge increases will take effect during the holiday shipping period of Nov. 20, 2017 through Dec. 24, 2017:
- Additional Handling Surcharge: Will increase $3 (27.3 percent) to $14
- Oversize Charge: Will increase $25 (34.5 percent) to $97.50
- Ground Unauthorized Package Charge: Will increase $300 (260.9 percent) to $415.
You can find more details of the FedEx surcharges here.
It's not surprising that FedEx would concentrate its temporary holiday surcharge increases to oversize packages. In fact, oversized shipments during the holiday season have increased 240 percent at FedEx in the past 10 years. These oversized packages now make up 10 percent of the volume in the FedEx Ground network.
In fact, Amazon.com, FedEx and UPS have each experienced increased demand for transportation of larger and heavier packages. With the growth of e-commerce, demand for oversized shipments (e.g., mattresses, basketball rim/backboards, trampolines, large-screen TVs, large appliances, etc.) have required network re-engineering as most of these larger items aren't transportable by conveyor belt. In fact, each of these companies have had to create both permanent as well as temporary facilities during peak season entirely dedicated to the sortation of oversized packages.
These changes are costing shippers more. In 2016, both FedEx and UPS announced new surcharges for “unauthorized” and “over maximum limits” to be applied to overly large and/or heavy pieces, which disrupt operations and require the carriers to incur additional handling costs.
By focusing temporary holiday increases on oversized packages, FedEx can recover added costs of handling oversize packages — or encourage shippers of these large, heavy, hard-to-handle packages to find another carrier.
While the holiday increases on oversize packages was anticipated, unlike UPS, FedEx didn't adjust Residential surcharges. UPS customers will pay an additional surcharge anywhere between $.27 and $2.99 for each package, while the FedEx residential surcharge will not change during the 2017 holiday shipping season.
For FedEx, a bird in the hand isn't worth two in the bush. While FedEx could have enjoyed tens of millions of dollars in incremental revenue by simply matching the UPS peak surcharge for residential shipments, the carrier is banking on gaining new customers this holiday season. It's a strategic move by FedEx in an attempt to gain new market share worth hundreds of millions or more.
However, rather than e-commerce business flooding from UPS to FedEx, I anticipate the effect to be that UPS simply won't be able to get away with 100 percent of the increases. Now that shippers have a choice and clear price difference, UPS customers will have greater leverage to negotiate concessions to the temporary holiday rate hikes. In other words, UPS shippers will give the carrier a chance to adjust the increase before they would switch to FedEx.
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.