Types of Shipping Surcharges: A Guide

By July 11, 2018 Contract Negotiation, Invoice Auditing, News
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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. 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 to confusion for merchants and make 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 adjust their shipping surcharge rates an annual or biannual  basis, while things like fuel surcharges tend to be updated on a weekly basis. This can lead to unexpected jumps in shipping prices for merchants on a weekly or semi-annual basis. For example, rising oil prices one week will almost certainly lead to an increase in fuel surcharges in the following weeks.

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 carrier. Merchants must recognize the differences between carriers and weigh the costs versus benefits of utilizing a private carrier.

If using a private carrier, merchants must stay informed about changes to shipping surcharges on an ongoing basis and apply that knowledge to each shipment. Merchants must determine the current shipping surcharge rates for private carriers and then account for how those surcharges will impact their shipping costs with an eye towards the weight of their shipment, their delivery area, 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 the types of shipping surcharges 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, fuel surcharges represent an important facet of maintaining ongoing profitability due to long-term contracts with shippers. If rising fuel costs aren’t adequately accounted for, private carriers can lose money on each shipment they deliver.

Tracking changes to fuel charges is important because fuel surcharges can lead to a substantial increase in shipping costs for merchants. We recently conducted a study that determined that fuel surcharges across over 2.5 million shipments resulted in an additional $2.2 million dollar cost for those shipments, or roughly $0.88 more per package.

Fuel surcharges are calculated by each private carrier, which accounts for variation 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: Tips for Shippers

Fuel surcharges can result in substantial changes in shipping costs due to the volatility of the international oil market and the subsequent impact on rising fuel costs. Although both FedEx and UPS calculate their fuel surcharges from the same data source, the period of time they are considering is slightly different, leading to discrepancies in fuel surcharges between the different carriers.

What many shippers don’t know is that fuel surcharges can often be negotiated with carriers to bring down the cost of shipments. As such, shippers can use this information to their advantage by leveraging lower costs with one carrier to gain a more favorable rate with their preferred carrier.

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.

The confusion surrounding residential delivery surcharges comes into focus when determining exactly what constitutes a residential dwelling. Typically, this charge is based on the delivery address, and whether the address is categorized as a residential or commercial structure is up to the carrier.

There are discrepancies between how private carriers determine this. For example, UPS determines an address is a residence if the delivery is to a house and the house doesn’t have an entrance that is open to the public. Therefore, if a shipper is delivering to a business located in a home, they would have to pay a residential delivery fee.

FedEx calculates residential shipping surcharges similarly to UPS in that deliveries to a home address are considered residential deliveries, regardless of if a business is operating out of that address. The key difference between these two private carriers lies in the availability of different delivery networks.

While UPS has only one ground network that makes both commercial and residential deliveries, , shippers could take advantage of FedEx’s Home Delivery network in order to pay a reduced residential surcharge  relative to what they would have paid had they shipped the package via FedEx Ground.

Residential Surcharges: Tips for Shippers

The best way to reduce residential surcharges is to be mindful of different shipping options and networks that allow you to reduce or even eliminate the surcharge completely. FedEx’s Home Delivery is one such network that charges a reduced surcharge for residential deliveries. Other options include utilizing FedEx Smart Post or UPS SurePost. Both networks handle the package for the majority of transit before handing it off to USPS for final delivery – 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 can result in a substantial increase in shipping costs for shippers.

According to our benchmark study, 594 oversize shipping surcharges resulted in an average cost increase of approximately $50.00 per shipment over a period of 12 months. This highlights the need for shippers to be particularly mindful of situations where they might incur an oversize package surcharge and to be aware of alternative shipping options for those packages.

Both UPS and FedEx apply oversize package surcharges when a shipment exceeds either the size or weight thresholds they have set forth. For both private carriers, shipments cannot exceed the dimensional girth of 130 inches.

Weight thresholds depend on the delivery network the shipper chooses to use. If a package has a dimensional girth smaller than 130 inches, but weighs over the threshold set by the carrier, then the package is considered oversized and charged accordingly. If a package is over both the weight and size thresholds, then the carrier may apply multiple surcharges.

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 eliminate handling fees on those packages, resulting in substantial cost savings.

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 carriers 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.

How to Avoid or Lessen Shipping Surcharges

There are a couple 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 oversize 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, shippers can reduce their shipping expenses and, consequently, their bottom-line.

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Author Shipware Admin

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