Were all aware of the tight economy and especially the severe impact on the transportation industry. Many parcel carriers are now adding upcharges for services as they try to compensate for the sputtering economy and price-conscious customers.
Parcel carriers recently started to impose both residential and rural surcharges for their expedited services along with rural surcharges as a way to drive additional revenues. For example, UPS Next Day Air tariff published January 6, 2003 shows a $1.15 surcharge for delivery to residential destinations, and an additional $1.75 applies to each package delivered to residences in over 24,000 rural ZIP Codes as published on January 6. FedExs Express US Domestic Rate Book, also published January 6, shows a Residential delivery charge of $1.40 per package and a $1.75 charge for ZIP Codes that fall within the PM or RM delivery areas, which consist of 9,627 ZIP Codes as of December 30, 2002. These surcharges vary by carrier and must be looked at carefully when determining value.
Technology has aided parcel carriers in assessing additional charges. As parcel carriers move to highly sophisticated sort centers, it has cut their costs. However, it has also made it easier for them to upcharge fees because they can calculate and invoice them very economically.
Many parcel customers have seen a rise in surcharges and other fees, especially an increase in shipping charge corrections and the number of shipments with address correction surcharges. One shipper saw a three percent increase in residential shipping charge corrections from the same time last year.
Typical shipping charge corrections include invoicing adjustments for incorrectly manifested weights, dimensional surcharges, address corrections and commercial shipments considered residential. But sometimes the fees simply create another source of revenue for carriers.
Presumably theres profit built into the surcharge fee structure of parcel carriers. But a number of shippers wonder whether the additional fees charged accurately reflect the cost of the service. Mark Hinders, traffic manager for Maurices Inc., asks whether it really costs UPS $100 in additional labor for his 20 parcels that have suite B instead of suite A on them. Hinders adds, Exorbitant assessorial charges damage what could potentially be a good relationship.
Dan Bruecker, manager of Parts Department for the Ariens Company, has a similar feeling. My parcel carrier nitpicks for address corrections that dont affect the actual delivery, states Bruecker. Sometimes Ive called to get the corrected address, and it is identical to the address that was on the parcel.
In most cases, surcharges are paid only by customers who actually use specific services. They are intended to make prices fairer because only the users must pay extra and companies can avoid raising prices across the board. In other cases, the fees apply to all customers as a way of passing along the extra cost associated with doing business.
Fuel surcharges are a good example of an upcharge that applies to most shippers. They are an important surcharge to consider during carrier selection. Many parcel carriers reserve the right to impose and change fuel surcharges on a monthly basis. These surcharges typically range from half a percent to four percent. It is best to read your current parcel contract to determine how your fuel surcharge is calculated.
UPS uses an index-based fuel surcharge that is adjusted monthly. Changes to the surcharge are effective the first Monday of each month and posted approximately two weeks prior to the effective date on the Web at www.ups.com/contents/eng_surcharge.html.
FedEx has adopted fuel surcharge calculation methods for both FedEx Ground and FedEx Express services based on the fuel prices published monthly by the U.S. Department of Energy. FedExs Ground and Express fuel sur-charges can be found at www.fedex.com/us.
Bob Goodman, president of Goodman Reichwald Dodge freight payment, said he has seen carrier fuel surcharges vary greatly. Many carriers have different fuel surcharge tables, he explains. It is very important to understand the calculations that your carriers are using.
Convenience is behind some of the surcharges. Many customers request daily pickup and are charged accordingly. Parcel carriers typically charge between $4 and $16 a week for daily pickup, depending on a certain spend threshold. Customers may also request one-time pickups that typically cost $4 to $6 per parcel. These upcharges are usually imposed to help offset the actual pickup costs.
It is also important to remember the conveniences of a Saturday or Evening Delivery. These upcharges allow the buyer to determine if the incremental cost is worth the convenience. In some cases, parcel carriers struggling to become profitable are adding charges for customers they say cost them more.
Goodman has noticed that more carriers are imposing fees for equipment. One of our customers was recently imposed a monthly fee for manifesting equipment that they have had for a long time, he says.
Theres another reason parcel companies assess surcharges shippers let them do it. Most of the time, shippers dont have the tools to calculate all the surcharges, or they feel they are too small to make a difference.
Wayne Thompson, director of Global Logistics for Pacific Cycle, explains, Within an eight-month timeframe, our parcel volume went up tenfold. We sat down with a third-party parcel negotiator and went line by line on the weekly bills. We had no clue that we were being charged for address corrections that were correct and totaling almost $200 a week. When we confronted the carrier, it offered to run a one-time address correction program for free on our address database to resolve the problem. Up until then, we had never heard of this service, and the carrier had never alerted us to this charge. After that instance, we began to pick apart every incremental charge and, as a result, will save over $20,000 in the upcoming year based on the same volume.
Thompson feels that if parcel carriers were upfront about the charges, valuable time on both sides of the fence would not be wasted by the numerous phone calls needed to get the issue resolved. We have a full-time team calling the carriers daily to get refunds on service failures and charges that were billed wrong. There is an obvious cost on our side, but it wouldnt even be necessary if we had the info sooner.
In an effort to reduce the financial effect of upcharges, some shippers have looked at the opportunity to file claims for billing errors, Guaranteed Service Failures and dispute residential surcharges. Filing for claims with parcel carriers is becoming too difficult for some shippers. Bruecker states, Parcel carriers depend on me not calling in to file claims. There isnt a way to efficiently track, file and receive refunds.
Justified or not, new and increased fees are a reality. This year, FedEx and UPS both raised their Delivery Area Surcharge by over 16% and their Express Residential Surcharge by over three percent. And these increased fees are causing more and more companies to take notice. Understanding the fees and knowing how they affect your bottom line is your best bet in taking charge of the upcharges.
Bill Knaninski is director of Parcel Services at IOgistics, Inc. of Green Bay, Wisconsin. For more information, you can e-mail him at billk@iogistics.com.
