• ITVI.USA
    16,030.520
    117.340
    0.7%
  • OTLT.USA
    2.809
    0.016
    0.6%
  • OTRI.USA
    22.220
    -0.080
    -0.4%
  • OTVI.USA
    16,016.550
    115.560
    0.7%
  • TSTOPVRPM.ATLPHL
    2.950
    -0.570
    -16.2%
  • TSTOPVRPM.CHIATL
    3.610
    0.650
    22%
  • TSTOPVRPM.DALLAX
    1.370
    -0.240
    -14.9%
  • TSTOPVRPM.LAXDAL
    3.550
    0.210
    6.3%
  • TSTOPVRPM.PHLCHI
    2.320
    0.220
    10.5%
  • TSTOPVRPM.LAXSEA
    4.110
    0.250
    6.5%
  • WAIT.USA
    126.000
    0.000
    0%
  • ITVI.USA
    16,030.520
    117.340
    0.7%
  • OTLT.USA
    2.809
    0.016
    0.6%
  • OTRI.USA
    22.220
    -0.080
    -0.4%
  • OTVI.USA
    16,016.550
    115.560
    0.7%
  • TSTOPVRPM.ATLPHL
    2.950
    -0.570
    -16.2%
  • TSTOPVRPM.CHIATL
    3.610
    0.650
    22%
  • TSTOPVRPM.DALLAX
    1.370
    -0.240
    -14.9%
  • TSTOPVRPM.LAXDAL
    3.550
    0.210
    6.3%
  • TSTOPVRPM.PHLCHI
    2.320
    0.220
    10.5%
  • TSTOPVRPM.LAXSEA
    4.110
    0.250
    6.5%
  • WAIT.USA
    126.000
    0.000
    0%
Air CargoModern ShipperNewsParcelTop Stories

FedEx peak surcharges pack wallop, but there may be loopholes

Certain pricing will apply to big shippers for only 4 weeks of peak

FedEx Corp. will again attempt to whack its big customers with hefty delivery surcharges this holiday season. But the carrier is going about things a little differently than its competition.

FedEx (NYSE:FDX) has set two cycles in the calendar to apply residential delivery surcharges: The first cycle covers parcels shipped Oct. 4-17. The second covers parcels shipped Nov. 15-28. Rival UPS Inc. (NYSE:UPS) and the U.S. Postal Service, the latter of which announced its peak surcharges last week, will not bifurcate their calendars in a similar manner. 

This presents an unusual scenario in that FedEx’s big customers whose volumes make them eligible for surcharge pricing could avoid the hit if they minimize their shipping activity during the two cycles, said Josh Taylor, senior professional services director for parcel consultancy Shipware LLC. In an email, Taylor noted that shippers and retailers could miss the second cycle by holding off on shipping their Black Friday orders until the following Monday. 

Taylor had no explanation for the strategy other than to call it “terrible revenue management.”

FedEx declined to comment on the structure or timing of the residential surcharges. It is no secret that FedEx’s network has been strained by the massive surges in residential volumes triggered by the pandemic-influenced explosion in e-commerce. It is also spending billions of dollars to make its infrastructure more expensive and flexible, and it needs to recoup those costs. 

A corollary effect of the surcharges imposed by FedEx and UPS is that they have helped widen the carriers’ operating margins. This has pleased the equity markets, which have rewarded both companies with rising share prices over the past 16 months. Shares of FedEx and UPS were up strongly in Monday’s trading.

The FedEx surcharges will apply to customers tendering, on average, 25,000 or more weekly shipments under the company’s residential and its Ground Economy products, the latter being traffic that FedEx for years had tendered to the Postal Service for final delivery to residences before taking all of that business in-house earlier this year.

To arrive at their tab, FedEx customers will calculate their average weekly volumes during the two 14-day periods, divide that by the number of weekly average packages shipped from Feb. 3 to March 1, 2020, the last pre-pandemic month, and multiply that number by 100. 

With the kickoff of FedEx’s peak season still more than six weeks away, it is impossible to gauge how big customers can position their holiday shipments to minimize or avoid delivery surcharges. What is clear is those businesses not able to escape the surcharge net will be paying through the nose. 

According to Shipware estimates, surcharges for FedEx Ground’s home delivery services will rise between 12.5% and 25%, with the percentage increasing along with the volumes. The company’s air express residential surcharge will range from 7.5% to 20%, again depending on volumes, Shipware said. The levies can rise as high as $6 per piece, which is roughly in the same ballpark as UPS. In fact, the two giants are not far from each other across the surcharge board.

On a percentage basis, the largest increase will be in the Ground Economy service, which didn’t even have surcharges in 2019. This year, shippers will pay a $1.50-per-piece surcharge during all of November and from mid-December to mid-January. That is up 50% from the year-earlier level of $1.

During the two-week period beginning Nov. 29, surcharges will escalate to $3 per piece, also up 50% from the $2 level last year. Not coincidentally, this will be the first peak season in which FedEx will control all of these shipments, and it expects massive volumes and revenues that it will not have to share with the Postal Service.

In general, this year’s peak is being forecast as somewhat easier on the delivery ecosystems than last year’s. Delivery networks are better equipped to handle the rush, and shippers and retailers have a year of hard learnings under their belts. With roughly half the U.S. population vaccinated — compared to zero last peak season — more consumers were expected to be shopping in stores and not online. However, the rapid and material emergence of the delta variant may throw a wrench into consumers’ holiday plans. 

On a daily basis, demand is expected to exceed capacity this peak by 5 million parcels, according to data from SJ Consulting Group. That is down from 7 million parcels during the 2020 peak. 

Still, it won’t be easy for big or smaller shippers to secure adequate capacity at reasonable prices. Regional delivery carriers have expanded their service capabilities since the last peak, but their networks are expected to max out fairly quickly. Richard Metzler, CEO of Austin, Texas-based LSO, which serves every ZIP code in Texas and which expanded its network to 10 states in June by adding Missouri, Kansas and Illinois, said Monday that the company is about to close the doors on new fourth-quarter business because it is bumping up against capacity limits.

The Postal Service was considered the carrier of last resort last peak season and will likely be thought of the same way this year. However, this year’s peak surcharges will bite postal shippers a little earlier and harder than last year’s. The surcharges kick in Oct. 3, two weeks earlier than in 2020. In addition, domestic shippers tendering heavier parcels traveling between 600 to more than 1,800 miles can expect to pay a $5-per-piece surcharge.

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.

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