2021 FedEx, UPS Peak Season Surcharges to Impact Large Packages and High-Volume Residential Shippers

An outcome of the pandemic-accelerated e-commerce boom, the demand for parcel services continues to exceed the supply. Like previous years, network capacity limits will be stretched for all carriers this holiday season and into 2022.

UPS recently put a number on it: the daily demand exceeds the parcel market’s network capacity by 5 million packages per day. Both UPS and FedEx are actively issuing significant off-contract rate increases to some of its largest e-commerce shippers to both increase revenue as well as free up capacity if/when those customers divert parcel traffic to alternate providers.

In addition, both FedEx and UPS have announced “peak” surcharges to apply this holiday season and beyond. While they might initially sound innocuous, detailed analysis reveals these added surcharges pack a wallop. This article seeks to provide shippers with a digestible understanding of announced price increases, as well as offer a handful of suggestions to mitigate the full financial strain of peak surcharges.

FedEx

Like last year, 2021 FedEx peak surcharges will have the greatest and most adverse impact to businesses that ship larger packages that incur Additional Handling, Oversize and/or Unauthorized surcharges, and high-volume residential and FedEx Ground Economy (formerly SmartPost) shippers whose average weekly volume is >25,000 packages.

Shippers will need to do some math to figure out where in the published table they can find their increase. Even more confusing, FedEx will take two separate calculations based on two-week increments as follows:

• Eligible packages (residential and FedEx Ground Economy) shipped Oct. 4-Oct. 17, 2021, divided by weekly average residential and FedEx Ground Economy packages shipped Feb. 3-March 1, 2020, multiplied by 100. Note, Peaking Factor and amount charged are determined separately for Express and Ground packages. The additional fees will apply to packages shipped Nov. 1-Dec. 12, 2021.
• Eligible packages (residential and FedEx Ground Economy) shipped Nov. 15–Nov. 28, 2021, divided by weekly average residential and FedEx Ground Economy packages shipped Feb. 3-March 1, 2020, multiplied by 100. Note, Peaking Factor and amount charged are determined separately for Express and Ground packages. The additional fees will apply to packages shipped Dec. 13, 2021-Jan. 16, 2022.

FedEx continues to up the ante with higher year-over-year (YoY) costs for each accessorial. Shipware has assembled a chart that compares the history of the FedEx Peak surcharges going back to 2019.

Quick math demonstrates significant YoY increases to FedEx customers:

• Additional Handling = 21.4 percent YOY
• Oversize = 19 percent
• SmartPost/Ground Economy = 50 percent
• Ground/Home Delivery = 12.5 percent to 25 percent
• Express Residential = 7.5 percent to 20 percent

UPS

Like previous years, UPS is placing emphasis on limiting the number of large packages in its network around peak, so shippers that ship many Large Package, Additional Handling, or Over Maximum shipments will again be subject to large peak increases. Additionally, shippers with much higher-than-normal residential shipments will again incur aggressive peak surcharges from UPS.

Each shipper will need to assess their own characteristics to determine the peak residential surcharges that they will incur based on the following fine print from the UPS announcement:

“[The residential peak surcharge] applies to customers whose combined volume of Ground Residential, SurePost, Next Day Air Residential, and All Other Air Residential packages have exceeded 25,000 packages in any week after February 2020, regardless of the volume of customer’s shipments for any particular service level. Once this threshold has been met, the Peak Surcharges apply until further notice to all service levels. Customer’s volume includes any affiliated accounts and other accounts related to customer, as determined by UPS in its sole and unlimited discretion.

"The Peak Surcharges apply to all Ground Residential, SurePost, Next Day Air Residential, and All Other Air Residential packages in any weekly invoice period exceeding 110% of the customer’s average weekly volume for the applicable service level for February 2020 (February 2 through February 29, 2020).

"For holiday weeks that are not full UPS operating weeks, the surcharge will apply to all packages in that weekly invoice period exceeding 110% of the customer’s average daily volume for the applicable service level for February 2020 multiplied by the number of full UPS operating days in that week.

"If customer’s average weekly volume for the applicable service level from August 29, 2021, through October 2, 2021, is less than 80% of its average weekly volume from February 2, 2020, through February 29, 2020, as determined by UPS in its sole and unlimited discretion, then customer’s average weekly volume from August 29, 2021, through October 2, 2021, will be used for purposes of applying the Peak Surcharge for that service level for the remainder of the Peak Period. Customer’s volume includes any affiliated accounts and other accounts related to customer, as determined by UPS in its sole and unlimited discretion.”

There are two possible calculations: one, using the average weekly volume from February 2020 or, two, average weekly volume from September 2021 if the shipper’s average weekly volume is 80 percent less than that of February 2020.

The following compares UPS peak surcharges YoY since 2019:

YoY increases to UPS customers:

• Additional Handling = 20 percent
• Large Package = 20 percent
• SurePost = Range of 5 percent to 71.7 percent
• Ground Residential = Range of 5 percent to 71.7 percent
• Air Residential = Range of 3.8 percent to 53.8 percent

While UPS will likely position these cost increases as necessary to subsidize higher operating expenses during peak (e.g., overtime labor, hiring hundreds of thousands of seasonal workers, contracting leases for additional assets including aircraft, trucks, trailers, vans, etc.), the reality is — only two quarters into its fiscal year — UPS has already had its most profitable year, ever.

While it’s true the carrier does, in fact, take on higher costs to handle the surge of packages within the five- or six-week holiday shipping season, many shippers have grown weary of the “cost to serve” argument given UPS’s billions in profits.

The other carrier argument is that increases are needed to maintain service performance standards. Again, not true as the two aren’t mutually exclusive.

Simply put, peak season surcharges are yet another way for the carriers to increase many shippers’ rates without having to renegotiate or otherwise mandate a contractual increase. Shippers can and have successfully fought back by negotiating peak reductions in the past and should continue to do so this year, especially given the magnitude of this year’s increases.

Rob Martinez is the CEO of Shipware, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Matt Bohn is senior consultant, professional services at Shipware.