FedEx Fuel Surcharges: What to Know

By July 12, 2018 Contract Negotiation, Invoice Auditing
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Based out of Memphis, Tennessee, FedEx is one of the most recognized and relied on  package carriers in the world. Processing over 14 million shipments per day, FedEx represents a key logistical resource for millions of merchants, shippers, and consumers in over 220 countries.

Clients find that working with FedEx as their third-party logistics resource can be both beneficial and challenging at times. FedEx provides access to a shipping network that is efficient, reliable, and massive in scale. Yet because of this scale, FedEx often has few competitors, presenting a challenge for businesses interested in alternative shipping options.

One of the primary reasons shippers explore different shipping options is to reduce or eliminate shipping surcharges. Like all other major carriers, FedEx applies shipping surcharges (in addition to transportation charges) to shipments that meet certain qualifications. These surcharges can quickly add up – leading to hefty increases to the total cost of a shipment.

One of the most common surcharges that FedEx applies to shipments is the fuel surcharge. This article will provide more information about what the FedEx fuel surcharge is and explore some avenues you can take to lessen it. We’ll also discuss some other common FedEx surcharges and their cost. This article will provide shippers with a greater understanding of their shipping costs and begin to explore avenues for possible reductions.

What are Shipping Surcharges?

A shipping surcharge is any fee applied to packages on top of the carrier’s base transportation rates. Fees are applied for fuel, residential deliveries, packages requiring signatures, etc. Shipments that have multiple special requirements that fall outside of the bounds of a standard shipment will incur multiple shipping surcharges.

Many shippers won’t know that they have incurred an additional charge on a shipment until they review their invoices. The charges appear on an invoice as a service charge or handling fee in addition to the transportation charges. This can lead to difficulty in keeping track of what exactly you are paying for when you are shipping an item.

Because there are so many different types of shipping surcharges, costs tend to add up quickly for shippers. This, along with the vague way that shipping surcharges are often invoiced, leaves many shippers unaware of how much they are paying in shipping surcharges.

Furthermore, many merchants and businesses don’t realize that there are proven strategies and tools that can help reduce or eliminate the amount they pay in shipping surcharges. The first step in reducing the amount you are paying in surcharges is to understand exactly what shipping surcharges are, when they are applied to your shipments, and what alternative shipping options exist.

Benchmark Report of Surcharges

To highlight the necessity of understanding exactly what shipping surcharges are and why you need to monitor them, we conducted a comprehensive benchmark report at Multi-Channel Merchant. The benchmark report yielded some results that may surprise most merchants.

First, it demonstrated the impact of surcharges on the total cost of shipments. Across a sample size of over 4.6 million shipments, accessorial surcharges accounted for 28% of total shipping charges. Put another way, surcharges can total nearly one-third of all shipping costs. The report also shows the frustration that many shippers feel towards surcharges, with 69% of respondents saying that if they could change their pricing agreement it would be to have fewer surcharges.

In addition to demonstrating the impact of shipping surcharge costs, the report also sheds light on the difficulty many shippers face in pricing agreement negotiations with carriers. 41% of respondents said that they felt that negotiating agreements with carriers was harder. This was primarily viewed as due to a lack of competition between carriers.

However, an important point to highlight here is that pricing agreement negotiation is possible, and data can help. The majority of respondents said that they relied on reporting and benchmark data to drive their negotiation. For shippers looking to save money on surcharges through more favorable pricing agreements, comprehensive shipping data for their operations is essential.

FedEx Fuel Surcharge

One of the more controversial surcharges that FedEx and other private carriers apply to shipments is the fuel surcharge. Fuel charges are applied to shipments to help carriers offset the rising costs of fuel and are calculated as a percentage the package cost. Because fuel surcharges are so common, and because they are calculated differently than other surcharges, they are worth spending some time to understand.

One of the major differences between fuel and other surcharges is that fuel surcharges are updated on a weekly basis. FedEx Ground shipping is subject to weekly rate updates, while FedEx Freight is updated and effective every Monday. This means that shippers must stay abreast of how fuel surcharges are affecting them on an ongoing basis. The current FedEx fuel surcharge can be found here.

As one would expect, FedEx calculates their fuel surcharge based on the cost of fuel. Specifically, FedEx uses the U.S. on-highway average price for a gallon of Diesel Fuel for Ground shipments and the U.S. Gulf Coast (USGC) spot price for a gallon of kerosene-type jet fuel for Express. Both are updated on a weekly basis by the U.S. Energy Information Administration and can be found here (gasoline/diesel) and here (jet fuel).

The FedEx fuel surcharge is a percentage that is applied to the transportation charge, meaning heavier packages and those moving longer distances will have a much higher fuel surcharge. The FedEx fuel surcharge is applied to a variety of shipping methods, including FedEx Ground, Express, and Freight. The fuel surcharge is applied on the net package rate and in addition to other transportation-related surcharges, such as residential delivery, on-call pickup, and oversize packages.

When looking at the fuel surcharge rate percentage you may notice that it differs from other carriers that you use. This is because each carrier calculates fuel surcharges differently. This is one controversial aspect of fuel surcharges. Because there is no law requiring carriers to calculate fuel surcharges the same way, and because fuel surcharges are a way to maintain profitability even when fuel costs rise, fuel surcharges can seem more tied to profit margins than to the actual cost of transporting goods.

Additionally, carriers aren’t actually required to pass on the money they accrue from fuel surcharges to the freight carrier or transporter who actually purchased the fuel. All of these factors can lead to frustration on the part of shippers.

There are a number of different strategies that shippers use to reduce the amount they pay in fuel surcharges. One of the most effective is data-driven. If shippers utilize a software platform that can track and analyze their comprehensive shipment data, they can then leverage that data in negotiations with carriers. Shipping carriers are often open to negotiating reductions in their fuel surcharge rate. For example, a shipping carrier may substantially reduce your fuel surcharge rate in exchange for a higher base shipping price.

For many merchants, this would result in significant net savings. In addition, shippers can use their data to show lower fuel surcharges with a competitor which may push the carrier to reduce their surcharge to match the competition. Lastly, while private carriers apply fuel surcharges to a variety of shipments, the U.S. Postal Service does not. Therefore, shippers may consider utilizing USPS Priority or Express shipping in order to avoid shipping surcharges.

Additional FedEx Shipping Surcharges

In addition to fuel, FedEx applies a variety of other surcharges. They can add up quickly, leading to substantial cost increases per shipment for many merchants. We’ll go over some of the more common FedEx surcharges in this section and break down what they are and how much they will cost you. This list will focus on only some of the most common surcharges, but you can access a full list of surcharges and how much they cost here.

Additional Handling Fee

The additional handling fee was introduced by FedEx in June of 2016 with UPS  introducing a similar fee shortly thereafter. The thresholds for the fee were updated in January 2018. Essentially, the additional handling fee is a fee applied to items whose dimensions, weight, or packaging exceed the thresholds set by FedEx.

A package may not exceed 48 inches on its longest side, 30 inches on its second-to-longest side, or 70 lbs. There are also a variety of restrictions on packaging type. The additional handling fee applies to domestic and international Express, Freight, and Ground shipments. For domestic and international ground and express shipments, a fee of $12.00 is applied to each package. For domestic freight shipments, a fee of $140.00 is applied to each freight handling unit.

The introduction of additional handling fees hit certain shippers much harder than others. Specifically, merchants who regularly shipped items that exceeded the size thresholds set by FedEx saw a substantial increase in their shipping costs almost overnight. While many shippers who are most affected by additional handling fees are already highly aware of them because of this, they may not know that there are a couple of different ways to go about reducing these fees.

First, it isn’t always easy to know exactly when you are being assessed an additional handling fee. Discerning this requires the use of a robust analytics platform that can analyze each shipment and the associated fees. Merchants that are incurring a high number of these fees are encouraged to perform a line-by-line audit of their invoices to pinpoint exactly how often they are being charged for them.

Many shippers are being assessed additional handling fees on otherwise lightweight packages, when they could simply use a smaller shipping container. As a final option, shippers can seek to negotiate more favorable pricing contracts that reduce or eliminate additional handling fees for their packages.

Delivery Area & Extended Area Surcharges

Delivery area and extended area surcharges are applied to shipments that fall outside of normal shipping locations. The addresses or destinations that fall into these categories are determined by the carrier. These may appear on your invoice as a delivery area surcharge (DAS), or extended delivery area surcharge (EDAS). These surcharges were put in place to offset the costs of deliveries to out-of-the-way or rural areas.

For FedEx, these charges are assessed based on the ZIP code where the package is being delivered. The use of ZIP codes to determine when to apply the surcharge is problematic for a number of reasons. First, ZIP codes are inexact and may be shared across a wide range of locations.

For example, a business based in an urban area may share a zip code with a rural area and may be charged for a delivery area surcharge on every shipment. The complete list of U.S. ZIP codes that are included in this fee can be found here.

An important caveat to keep in mind is that FedEx operates multiple independent delivery networks for Express, Commercial Ground, and Residential Ground delivery, and the delivery area surcharges differ for FedEx Ground Commercial with Residential Delivery and FedEx Home Delivery.

Because of this, shippers must ensure that they are shipping within the network that will reduce the surcharges that they are paying. One of the best ways to reduce costs associated with delivery area surcharges and extended area surcharges is to carefully select the appropriate delivery network.

For example, if a delivery to a residential address falls into a ZIP code that incurs a delivery area surcharge, the shipper would save $1.10 per shipment by shipping the package through FedEx Home Delivery rather than through FedEx Ground since both the residential and delivery area surcharges are lower for residential packages moving through the Home Delivery network.

Oversize Charge

FedEx will apply a substantial fee of $80.00 per oversize package. If your package exceeds the thresholds set forth by FedEx, then an oversize charge will apply. Packages that exceed 96 inches in length or 130 inches in length and girth are considered an oversized package.

For shippers that frequently ship oversize packages, the best course of action to reduce the amount of money they are spending on surcharges is to negotiate more favorable pricing in their contract. In order to do this, shippers will need comprehensive shipping data from past shipments that have incurred this charge. Often, carriers will reduce the oversize package surcharge in exchange for a higher base shipping rate which can result in substantial cost savings over time.

Residential Delivery and Pickup Charges

FedEx will also apply a fee for deliveries to residential addresses. In addition, FedEx charges a wide variety of fees for shipment pickup. Pickup fees are assessed on a weekly basis, and depend on whether the pickup location is residential, same-day, or in an extended delivery area. Residential delivery fees are based on the destination address, regardless of if a business is operated out of the same address. This leads to frustration and confusion, particularly for small businesses that operate out of a residence, or where businesses operate out of a building that has been rezoned from commercial to residential.

The most effective way around residential delivery surcharges is simply knowing what your options are. FedEx operates multiple independent shipping networks that can perform residential deliveries, but using the right one will result in the lowest package charge.

Additionally, shippers can consider shipping through USPS, which doesn’t charge a residential delivery fee. Alternatively, shippers can ship via FedEx SmartPost, which utilizes USPS for the final leg of the shipment and eliminates residential delivery fees.

Summary

FedEx shipping surcharges can quickly add up for shippers that aren’t paying close attention to their shipping costs. As we have seen, these surcharges are applied to shipments for a number of different reasons and range from fees associated with fuel to residential deliveries. The most important step a shipper can take towards reducing the amount they are spending in surcharges is to collect comprehensive data on their current shipping.

This can be difficult due to the obscure way that shipping surcharges are invoiced. Outsourcing this to a third-party logistics provider like Shipware can be a cost effective means of accessing detailed shipping information across all of your shipping channels. This data will potentially highlight areas where you are overpaying for shipping surcharges and can be leveraged to negotiate more favorable pricing on surcharges. Remember, surcharges account for up to one-third of all shipping costs, making this a top area for cost reductions.

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Author Shipware Admin

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