Decoding the Most Common FedEx and UPS Surcharges
10/11/2021 — Jen Deming
Taking a deep dive into your invoice from FedEx or UPS is a smart move for any shipper. But, once you dig into your statement line by line, chances are you’ll see extra charges that may puzzle you. Those unexpected fees are likely shipping surcharges - costs added to your base price by the carrier.
Though undeniably complicated, it’s important to have a basic understanding of the surcharges your carrier of choice, FedEx or UPS, may apply to your shipment. The more you know about surcharge types and how they impact your bill, the better you can manage your costs. Taking a look at the most common and costly FedEx and UPS surcharges is a great way to become familiar with what you may see on your bill.
When it comes to parcel shipping, oversized shipment charges often lead the way in expensive fees. Ecommerce has led to larger and more irregular-sized shipments in their networks, and both FedEx and UPS implement pricing strategies to offset the extra costs associated with it. Surcharges related to shipment size and specifications are a way to combat packages that could be transported using another service, like LTL freight. These fees are based on both size and weight limits, and vary between carrier.
FedEx and UPS charge different amounts for these fees, though both can be well into the hundreds of dollars. Even more importantly, the definition of what is considered “oversized” can change and the amount charged increases annually at the very least.
FedEx has three separate fees for larger shipments, and each has a different set of criteria.
- Oversized – Applies if your package exceeds 96 inches in length or 130 inches in length and girth combined.
- Unauthorized – Applies if your package exceeds 108 inches in length, 165 inches in length and girth combined, or 105 pounds in weight.
- Additional Handling – Applies if your package exceeds 48 inches in length, 30 inches in width, and 105 inches in length and girth combined; or if your packages weighs more than 50 pounds (domestic) or 70 pounds (international).
UPS also charges fees based on a shipment’s size or whether it has handling requirements.
- Large Package – Applies if your package exceeds 96 inches in length or 130 inches in length and girth combined.
- Additional Handling – Applies if your package exceeds 48 inches in length, 30 inches in width, or 105 inches in length and girth combined; or if your package weighs more than 50 pounds (domestic) or 70 pounds (international).
- Over Maximum Limits – Applies if your package exceeds 150 pounds in weight, 108 inches in length, or 165 inches in length and girth combined.
These are the qualifications that apply as of 2021. Keep in mind it’s always important to stay up to date on changes and amendments throughout the year.
There are certain times when U.S. shipping volume spikes due to an increase in demand. This spike can be caused by seasonal fluctuations, the economy, or any number of other factors. When more shipments are entering the network, it can be a struggle for carriers to meet this demand. Peak surcharges are fees implemented during these times to help offset the extra work it takes to get these packages delivered, and to help weed out the harder to manage, less profitable shippers. Because demand has surged during the pandemic, we’ve seen an unprecedented amount of peak surcharges for both FedEx and UPS, with adjustments being made as needed. As demand stays elevated, they’re likely to continue, which is why it’s important to review what circumstances dictate these charges.
Any shipments that require an extra level of effort (either by package characteristics, frequency, extra services required, etc.) are most likely to incur peak surcharges. The first step in determining whether you’ll be seeing peak surcharges is reviewing a few important factors that put your shipments at risk. Larger packages and those that require additional handling like those we’ve outlined above have been historically affected, and continue to be targeted. In addition to the size of the package, if you’re a large shipper who’s seen an increase in volume, you’ve likely seen a significant spike in your costs due to additional peak surcharges.
Prior to the pandemic, peak surcharges were typically only applied during the holiday season, since that’s when FedEx and UPS saw a consistent increase in package volume. How much the fees cost and what packages they applied to varied by carrier and by year. However there are some trends you can note and typically expect. Just like the peak surcharges that have come along as a result of the pandemic, larger shipments are often targeted with extra fees during the holidays. Residential deliveries are also often hit with peak surcharges since so many people are ordering holiday gifts for loved ones during this time of year, straining the carriers’ networks.
Fuel costs are another common surcharge that will apply to each and every shipping invoice you receive. As commuters, we are well aware that fuel prices are a large component of transportation costs. Whether you’re shipping small package via delivery van, a full trailer, or by plane, you can imagine how much higher those costs can climb. As fuel consumers, we are also aware that the price of fuel does not stay consistent for any set period of time. Something has to be done so that carriers can be sure they aren’t losing money on fuel costs when they fluctuate.
Fuel surcharges are intended to provide an average cost of fuel, so the carrier is protected from loss if fuel prices rise during the term of a contract. Even still, there is no benchmark surcharge amount. The cost can vary by carrier, and as the price of fuel fluctuates, that surcharge will be amended. There are three primary factors that are used to calculate a fuel surcharge: Base Fuel Rate, Base Fuel Mileage, and Source and Interval of the Average Fuel Price. A Base Fuel Rate is the price that determines when a fuel surcharge is to be activated and applied to a bill. Base Fuel Mileage is the miles per gallon that a truck averages on the road. Source and Interval of the Average Fuel Price is a government determined figure and the only component of fuel surcharges that is regulated.
While there isn’t much that you can do to challenge fuel surcharges, it’s important to understand that they exist to protect the carrier from lost profit. Both FedEx and UPS publish up-to-date fuel surcharge information so that you know how this variable affects the cost of your shipment transportation.
Residential delivery charges
Out of all the surcharges that exist, it’s essential for retailers to understand the impact of residential delivery when planning their shipping costs. A “residential delivery” is defined as one that a carrier must make to a home, whether it’s a single-family dwelling, apartment building, condo complex, or a dorm on a college campus. These charges are necessary for carriers so that they can offset the inconvenience of handing off one shipment to a single location - clearly less efficient than delivering to businesses.
Both FedEx and UPS apply residential delivery fees to a variety of scenarios. It’s important to know that businesses operating out of the home will be marked as residential. Additionally, if either the declared delivery location (what’s on the label) or the actual delivery address (in the case of an error) is determined to be residential, the fee will apply. These circumstances are important because while you want to keep costs low, trying to pull one over on the carrier is never a good idea.
Both FedEx and UPS implement fees for a variety of pick-up services. Generally, the fee is calculated depending on the immediacy of the pick-up and the type of location. FedEx breaks down pick-up types into three main categories for its FedEx Express and FedEx Ground services: on-call, return on-call, and regular stop. Each pick-up type has a fee that ranges from no charge to a set cost per package. For regular shippers, there is a maximum weekly fee for cost-savings and convenience.
UPS also offers a variety of pick-up options that are associated with their own charges. Commonly used pick-up options include: UPS On-Call Pickup®, UPS Smart Pickup®, day-specific, and on-route pick-ups. Like with FedEx, as needed services are charged by pick-up or package. Regularly scheduled pick-ups are charged weekly fees that may fluctuate, usually depending on shipment volume.
It’s important to know that pick-up fees are higher for residential locations, metro areas, and inside pick-up services. As in the case of most surcharges, these fees can change, and you should always consult either carrier’s latest service guide for a complete picture of costs. If using pick-up services is cost prohibitive for you, you should consider reviewing drop-off locations as an alternative.
Third-party billing fees
Both FedEx and UPS charge third-party billing fees. These fees are a percentage of the total bill, including base charges and any accessorials needed. As of 2021, UPS and FedEx charge 4.5%. That percentage might sound low, but it can add up fast. If your business is using multiple manufacturers or suppliers to help fulfill your orders, you will be seeing third-party billing fees for each order. It’s also important to note that this fee may cost more in the future, as it has already seen some increases in the past.
FedEx and UPS started instituting a third-party billing largely in response to the increased use of drop shipping by ecommerce retailers. Drop shipping is a process where, rather than keeping inventory on hand, sellers may use a supplier or manufacturer to fulfill and ship orders directly to the customer. As the third-party bill-to, the seller is neither the shipper nor receiver, but is paying the shipping charges.
If you’re often using third-party billing as an option, it may be possible to negotiate rates with your carrier. You may be able to get the fee removed through your agreement, or lower the percentage charged, especially if you’re creating a lot of business for the carrier.
Other notable surcharges
We’ve covered common surcharges that will impact your shipping invoice the most. However, there are several other service fees that you may see.
- Address correction - associated with changes a carrier must make to correct a given address
- Signature services - proof of delivery via signature in order to protect against liability
- Weekend pick-up/delivery – completing shipments outside a carrier’s normal hours of operation
- Delivery area – extra effort it takes to drive out to hard to reach locations, such as rural areas
A general rule of thumb to always remember: if your shipment needs services that require extra effort from the carrier, there is probably an associated charge.
How to prepare for these fees
Most FedEx and UPS surcharges are simply part of the business, and are unavoidable. As a component of your total shipping invoice, you should take the time and effort to understand why they’ve been implemented. Most importantly, a thorough knowledge of the basics can help identify how they will impact your business based on your unique shipping needs. It’s unbelievably important to stay up-to-date on surcharge adjustments and increases by looking at annual service guides periodically. Auditing parcel invoices regularly can help identify which surcharges you’re seeing most frequently.
By understanding how these fees impact your shipping spend, you can create a better plan of action for both your shipping operations and your pricing strategy. Working with a 3PL that is familiar with FedEx and UPS surcharges can help take the stress out of sorting through the data. At PartnerShip, we can help simplify things for your business – from conducting a shipping analysis to publishing resources that offer a Cliff’s Notes version of service guide mayhem.