Small parcel rate agreements are complex documents that, whether by design or not, are almost impossible for most shippers to fully understand on their own.
Worse yet, what creates much of this complexity is something a lot of shippers don’t even think about — the surcharges, fees, and accessorials that are buried deep in ALL parcel agreements.
This is an out of sight, out of mind situation for shippers because most of these costs only show up after the fact on the invoices. Most shippers budget for costs based on base rates with no consideration given to these extra fees. Yet they can make up 40% or more of the total cost of a shipment.
The good news is this seems to be changing. According to a survey by Parcel, over a third of respondents identified accessorials as their biggest concern with domestic parcel carriers. Companies are starting to get it.
Hopefully, this is a trend that will continue. As regular readers of this blog already know, both FedEx and UPS use these surcharges and fees to drive margins for themselves because they are less noticeable to shippers than the annual across-the-board GRIs. Also, fewer shippers have agreements that cap or prevent a great number of these charges, as many do with base rates for core services.
When you consider the huge increase in B2B deliveries created by the growth of ecommerce — and the carriers’ relative unpreparedness from an operations and pricing perspective — it’s understandable why they take this approach to generating incremental revenue streams from customers.
The net result for their customers, unfortunately, is an opaque process for budgeting costs. And, at the end of the day, shipping expenses that are higher than they’ve budgeted for.
These surcharges can include the obvious and avoidable — like fees for Address Correction or a missing or Invalid Account Number on a shipment. These are simple, but expensive mistakes.
FedEx charges $15 per address correction or missing account number, UPS $15.90. It is easy to see how quickly they can add up. For most shippers, these amounts exceed the average cost of most shipments in the first place.
An even more common surcharge is for fuel, which is applicable to all shipments. The difference between UPS and FedEx, however, is great. UPS is approximately 15% more expensive for Ground, 20% more expensive for Air, and a whopping 73% more expensive for Import shipments.
Unfortunately, most surcharges are not as easy to understand, and many cost a lot more. So, with over 100 potential accessorial charges hanging over your small parcel shipments, how can you reasonably keep track of all of them?
Where Do These Extra Charges Occur?
To start, it makes sense to focus on the most common, and impactful. The extra charges we see most often occur in five main areas.
1) Residential vs. Commercial Delivery
2) Destination Zip Code (Delivery Area Surcharge, Remote Area, Extended Area, etc.)
3) Packaging/Dimensions (Additional Handling, Oversize/Large Package, Unauthorized/OverMax, etc.)
4) Package Contents (Declared Value, Signature Required, Hazmat, etc.)
5) Incorrectly Manifested (Address Corrections, Adjustments, Incorrect Account Number, etc.)
Just being aware is an important first step, but taking action is necessary too, to minimize the impact of accessorials and surcharges on your small parcel shipping. This should start by understanding, in detail, the surcharges you are paying for now. Once you’re armed with this knowledge, there are two impactful steps you can take.
First, carriers actually like to know about the details of your business and what it’s going to take to service you. So, providing a carrier with detailed information about your shipping needs and habits will cut down on the number of surprises on your invoice. The reason is many of the costs are fees that can be negotiated out of your agreement. From a carrier’s perspective, a big part of pricing a piece of business is knowing what to expect, so the things that make your shipping patterns unique are factored into the pricing agreements you operate under. Most importantly, this an exercise you can do with existing carrier relationships and does not need to wait until your current agreement expires.
Here’s another tip. Not only is it important to understand where your customers are and your shipments are going to, it’s equally important to understand where your distribution centers are located. The reason is if you have any location that is in a DAS zip code, you’re paying for DAS surcharges on all inbound packages, too. The good news is this is an easily negotiable point, depending on the frequency of inbound shipments, but it’s often overlooked by shippers, as they are too focused on their outbound.
Also, look at your shipping history and see where you are getting hit with the most charges. Then take steps to tighten up those processes. An example could be reconfiguring how certain products are packaged into smaller, or multiple, cartons to eliminate Oversize charges. Or, if address accuracy is a problem, that should be an easy fix. For fees that are unavoidable, have a process to allocate or chargeback those additional costs that may be the fault of a supplier or other party further upstream in your supply chain.
Surcharges Can Be Unavoidable
Sometimes surcharges are able to be anticipated yet are still unavoidable — like with some residential or delivery area surcharges. But, knowing when the surcharges will happen helps. What’s most important is diligently tracking those costs so they can be included in the customer quote or invoiced accurately after the fact.
Another mistake shippers make is trusting they are invoiced accurately by the carriers. Auditing every freight invoice to ensure accuracy takes time, but is worth doing.
What’s most important is not to think of accessorials like these as a cost of doing business. Carriers thrive on the carelessness of shippers and the complexity of shipping rates. A key point is that carriers assume that most companies do not plan for accessorial-related charges and take advantage of this fact. But optimizing processes and being accurate will cut down on your accessorials — or at the very least help you allocate or recover them.
An analysis of your shipping history and characteristics will identify the areas that should be focused on for improvement. Keep in mind that accessorial charges are negotiable, so make sure you are not being overcharged for those instances when you are at fault. When you give carriers this information upfront, they will be more willing to negotiate.