FedEx is pushing current surcharges, focused on Express and Ground home delivery services, to higher levels during peak season as shippers fight for limited space in parcel carriers’ networks. The additional handling and oversized surcharges will rise from $3.50 to $5.95 and $30 to $62.50.
FedEx said on its website the surcharges are necessary to keep service levels high.
“We are entering another holiday peak season during which we expect continued high demand for capacity and increased operating costs across our network,” FedEx said. “We again anticipate the surge in residential volume to carry over into the new year.”
FedEx and UPS have instituted an array of surcharges because package volumes have surged during the COVID-19 pandemic. Although both carriers have made sizable investments in their networks, UPS expects the industry’s demand to exceed capacity by 5 million pieces daily during peak. Shippers are diversifying by shifting more volume to regional carriers, but capacity is still hard to come by.
The volume spike shows no signs of abating — FedEx is already setting $0.60 per-package surcharges to begin Jan. 17, 2022 for Express and Ground home deliveries in the U.S. No end date was listed.
“Although not a surprise peak surcharges will continue in 2022, FedEx is the first to put it in writing,” Nate Skiver, founder of consulting firm LPF Spend Management, wrote on LinkedIn. “For those shippers who thought the door had closed to diversify their carrier base before peak season, you may want to re-open it. If not for peak season, then kick it open in January.”
FedEx and UPS have made it clear they’re prioritizing more profitable shipments from small- and medium-sized businesses and sectors like health care, since volume itself hasn’t been hard for them to come by.
“We will continue to confidently renegotiate our large customer segment contracts to increase profitability,” FedEx Chief Marketing Officer Brie Carere said on the company’s Q4 earnings call. “This means balancing product, day of week and lane mix at the customer level, while ensuring appropriate surcharges and rate increases cover rising labor costs.”
FedEx’s peak residential delivery charge, for example, only affects high-volume customers. But the 25,000-package weekly average volume threshold is lower than last year’s 35,000. This is similar to the approach UPS announced for its 2021 peak surcharges, and Carere said companies paying this surcharge are helping cover the additional labor costs FedEx sees during peak.
“Those that have the highest peaking factor really pay for the incremental labor at peak,” Carere said, referring to the metric the carrier uses to measure shipper volume increases compared to February 2020.
Post time: Aug-17-2021