What are carrier peak surcharges?
Essentially, during peak shipping periods, the carriers are tasked with bringing in temporary help. To offset these costs, they now add a peak surcharge. Now, you may argue that's not my problem. You're getting more packages, you're getting more volume, you're making more money, you need to automate more, and they have invested.
Peak surcharges are derived from the carrier labor costs significantly increasing during peak. So, they're going to charge more during peak. UPS and FedEx don't collaborate, and yet it's amazing how they both came out with this idea of peak surcharges at the same time. The USPS waited a year or two, but they're now doing it as well. And this year, for the first time, Amazon is instituting peak surcharges for its third-party sellers as well — which some might say is literally punishing the “little guy” for shipping their own stuff instead of stocking it with Amazon. And they would be right.
When did carriers first implement peak surcharges?
In 2020; It was a pandemic launch, and in that regard, I understand it was tough to get people to work even part time during a pandemic. So, their situation changed — but their financials remained strong.
How should companies prepare for peak seasonal surcharges?
I would say a couple of things. If you can move product closer to your shipping destinations, do it ahead of peak. Look at where surcharges lie to understand the fee impact on services at your shipping volume.
I’ll give you an example. Carriers are clear about when these surcharges will go into effect, so if we look at the ground economy package environment, from October 27th, you’re paying $1.50 per package, but after that, you’re moved to a higher rate. So, move as much as you can, and maybe you build in incentives based upon when your customers order and when you can ship. It’s the same with overnight. If you can’t get things where you need to get them, and you’re going to have to use express or international services, move it now.
UPS is different. It looks at your previous volume periods, but that only affects businesses doing 20,000 packages or more. So, then the question becomes, how can you shift some of your volume to another carrier, so volume-based surcharges won’t apply? This is when people with a single carrier strategy start asking if that’s really their best bet. If you know you’re going to hit that 20,000 mark, would you consider moving some volume to another carrier to avoid peak demand surcharges? Because the cost fluctuation is not kidding around, but shippers need to feel confident about service levels in order to protect the customer experience, ensure on-time arrival, and avoid lost packages.
And then FedEx has its own peak strategy, so now more than ever, my best advice is a multicarrier shipping strategy. Because putting all your eggs in one basket isn’t really a sound thing to do.
So, how can a business find cost-effective shipping solutions and still meet holiday shipping deadlines?
Pay attention to the windows, and include your marketing team, so they can put together promos to share deadline information with your customers. Don’t look at it from a strictly internal perspective. We all know what happened in 2020. People didn’t get their Christmas gifts. I personally think Americans are conditioned now, and they’re more cognizant of what’s going on in the logistics world. And if they want to make sure there is joy in their households, they don’t want to wait ‘til the last minute. Fewer and fewer folks are relying on the last minute. We were dependent on it because we were used to it. But now, we just know better.
So, consumers have adjusted their shopping strategies, and that makes retailers nervous, right? They expect this big push on Black Friday, and then Black Friday was down year-on-year. And it’s down because you're getting business ahead of time, but it's not measured in the same way. The metrics have changed because consumers are making different moves, but the data is not being captured in the same way.
What are your best tips for avoiding surcharges and other additional fees?
I would consider solutions that look at all your carriers in unison. That will provide you with landed cost, and the same carrier management solution will help you eliminate address corrections. Address corrections are an additional charge. UPS is $18 a pop, and it’s $19.50 from FedEx. You could just be missing a directional or using “street” instead of “road.” It's not always as apparent as you may think. Minor address issues will trigger those fees.
What specific tools and services do you recommend for managing shipping costs?
Well, I would preface it by saying it should be all the time — not just the holiday season.
First, take time to understand what you’re paying now. What are your costs? And how is that relative compared to prior years? Look at what’s going on with your cost structure, and understand your delivery objectives. Are you offering your clients premium services or giving away free shipping? Look at it from the perspective of when you want it delivered.
And look at it from a multicarrier strategy standpoint — getting the lowest cost package based upon delivery objective, when you need it there, and which of the big three carriers can get it there. It used to be that discounts were a percentage based upon air or ground and two-day versus three-day, but now they’ve forced volumes into the mix and eliminated some of that activity.
Work towards flat rate discounting with the carriers. Understand the discounts and where they apply within the services you use most. A 40% discount sounds great, but what if you have no volume there? It makes you feel good, but recent carrier increases are heavy on the services clients want now. As people change their shipping strategies, carriers move rate increases into where clients are going. This year, the average was a 5.9% increase by UPS and FedEx for next-day air, but for ground, two-day, and three-day, they hit those harder and raised rates higher.
Pitney Bowes has several software solutions available. All of them are cloud-based, and there are different flavors for different volume levels and integration and customization needs. We have a full suite of products, whether you ship 10 or 10,000 or 100,000 a day, we have a range of products that fit the bill for every shipper, with customization available at every level. So, we really cover the scope of what any client could possibly need from a small parcel shipping standpoint.
What can shippers expect in terms of volume capacity compared to prior years?
I expect carriers will be much more prepared since the population has clearly changed its holiday shopping strategy. I think capacity should hold strong. The supply chain may be the bigger problem.
What is the most significant mistake you’ve seen businesses make in peak shipping management?
I would say, setting unmanageable or unattainable client expectations. That hurts you for that single sale, but it also hurts your reputation. I won't name names, but I do know of a business that did just that — and it took a tremendous hit. Because now, whether it's the holidays or not, people are turned off by that one event, and they don’t forget. There’s a certain feeling about the holidays and giving presents; if someone doesn’t receive a gift from you, it’s more of an emotional connection.
It’s a mistake you’re only given the chance to make once. From a reputation standpoint, you’re going to make that mistake, and then live with it for the rest of your life. Does anybody tell their friends when they have a good experience with a business? Maybe.
But if we have a bad experience, we’re going to tell everybody.
Is there anything else readers need to know about shipping rate changes?
I want to add one thing. Stay on top of what's going on with carriers. Attend educational opportunities provided by vendors, so you can better understand what's going on in the industry. You don't have time to understand every bit of it, but other companies do it for you. So, make use of your vendor.
If you have a vendor for carrier solutions, like Pitney Bowes, and they hold an event, make use of it. You never stop learning, and carriers aren’t changing annually anymore. The rate change used to be once a year, but it doesn't happen that way anymore. It's ongoing.
Don't think you have to be the expert; rely on the industry that is the expert.
View Tom’s latest webinar with David Bilodeau, 2022 Peak Holiday Shipping Rates: Get Informed and Be Prepared, and visit pitneybowes.com for holiday shipping solutions that work for your business.
Get more details on holiday shipping deadlines here.