In the world of logistics, the holidays are coming fast. And small parcel shippers using UPS just got an early look at their “present” from the carrier this year.
What’s immediately apparent is that on top of UPS and FedEx’s just-announced fuel surcharge increases (Read: How the Latest Fuel Surcharge Updates from FedEx Compare to UPS), shippers will have to contend with two large increases in the next four months, and all shippers should expect the Peak environment to last until at least the end of 2021. UPS has previously signaled that Peak Surcharges would be scaled back in 2022, so let’s hope that is still the case and we’re nearing the end.
With the annual GRIs looming and always present potential for other new fees and surcharges, it’s more difficult than ever for shippers to forecast their parcel costs as we head into the second half of 2021.
But for now, companies need to focus on what is known today. The current situation is that UPS has announced another update to its Peak Surcharges, in addition to several Holiday Peak Season Surcharges.
There is a lot to unpack with this announcement, so we spoke to Transportation Impact EVP of Operations Brian Byrd to help readers understand all of the changes and their implications.
Question: Additional Handling and Large Package surcharges are prominent in the announcement. We’ll touch on Residential in a later question, but what should shippers make note of first as it relates to those two surcharges?
Brian Byrd: There is a lot going on with the announcement, but a few things stand out. First, as the chart shows, UPS is increasing both of its surcharges significantly on July 4, with Additional Handling (AHS) and Large Package increasing from $3.00 to $3.50, and $31.50 to $40.00 respectively. This AHS increase matches FedEx’s announcement on May 21. Note that FedEx did not announce any increases for Oversize (its equivalent to Large Package Surcharge). Then, UPS revealed additional increases as of October 3 that will remain in place until January 15. The Holiday Peak increases essentially double where the surcharges are at right now.
Question: We all know the 2020 Peak Surcharges were nuanced, with reference to pre-COVID package volumes affecting the calculation. How does that change this year?
Brian Byrd: It doesn’t change.
UPS is still using pre-COVID volume as a basis to determine the Peak Surcharges that will apply to residential packages. For example, UPS is adding two additional levels of surcharges this holiday season when package volume is 400% to 500% above a shipper’s February 2020 volume and another at greater than 500% above the February 2020 volume. They are also extending the Residential Surcharge fee two more weeks in 2021 by starting on October 31 instead of November 15. This increases the window shippers will have to pay this surcharge by two weeks compared to last year.
A theme here is that UPS is working to drive more revenue from shippers who have grown since the pandemic began. The bigger your parcel volume growth, the greater your extra surcharges.
This chart shows this breakdown by service type.
UPS will apply a Peak Surcharge to Air Residential, Ground Residential, and Surepost packages for all U.S. domestic shipments, for qualifying customers who have shipped more than 25,000 packages during any week following February 2020.
Question: Many of these increases impacting Peak and Holiday surcharges follow a familiar pattern from last year and earlier in 2021. What other increases should shippers be aware of?
Brian Byrd: There are a few notable year-over-year Holiday Surcharge comparisons to be aware of once a shipper has figured out how the extra surcharges will apply to them based on their volumes.
First, Over Maximum Limits currently does not have a Peak Surcharge, but this will change starting on October 3, with a fee of $250 per package. It will continue through January 15, 2022. The amount is equal to the Over Maximum Limits Peak Surcharge during the 2020 Holiday Season. Shippers will look to avoid this specific surcharge as it will compound with the listed base charge of $920 for packages triggered with Over Maximum Limits.
The SurePost, Ground Residential, and Air Residential surcharges are increasing by $.15 from 2020 to 2021 for each service level. Lastly, Additional Handling is going up by $1.00, and Large Package by $10 compared to 2020.
As we always say, with change comes opportunity. But to take advantage of these changes you need to understand how the increases will impact your parcel shipping costs. Then, armed with that information, every shipper has the opportunity to find ways to leverage that knowledge to improve their rates and service agreements.
Here’s where to start. Email firstname.lastname@example.org to get a no-obligation analysis of how much all of these surcharges will increase your shipping costs. This will give you an accurate baseline of your costs with all of these updates accounted for. You are then prepared to make the best decisions for your small parcel shipping operation heading into the 2021 Peak Shipping Season.