Due to the increasing complexity of ground parcel shipping rates, it’s quite possible that many shippers may not be aware of the potential surcharges to which their packages are being subjected.
According to the Reveel Group, a shipping logistics consultancy, approximately 35% of a company’s shipping expenses are surcharges. As a result, the impact to your bottom line can be significant. You may also be damaging the relationship with your customer, who may choose to look elsewhere to minimize shipping costs.
Understanding what these surcharges are — and how they are applied — can be a powerful tool to help you potentially minimize costs and retain the business necessary to grow.
We’ve identified three main areas of cost impact to support your planning: additional delivery expenses, package characteristics, and value-added surcharges. Here are some scenarios of how those attributes drive the surcharges and cost-saving alternatives for each situation.
1. Additional Delivery Expenses
First, it is crucial we understand the incremental cost surcharges to deliver the package.
Residential delivery and delivery area surcharges impact any delivery to a location that is a home, including a business operating out of a home. Delivery area surcharges also apply to rural deliveries outside metro areas.
- Impact per package: $3.60 - $4.85, depending on the carrier. (This is not part of the dimensional weight calculation).
- Cost-saving alternative: Offer to pick up at your own store, FedEx office, or UPS Store. There is also a discount if the item is shipped to the customer’s workplace instead of their home.
The index-based fuel surcharge is tied to the average price of diesel fuel as listed by the U.S. Energy Administration.
- Impact per package: 6.25 - 7.75%
- Cost-saving alternative: Fulfill the order closer to the customer. Options include shipping from fulfillment centers, implementing a ship-from-store model, utilizing a 3PL (third-party logistics provider), or zone jumping. Again, pick-ups can be made from a store or FedEx office, and discounted rates can be realized when shipped to a customer’s workplace.
2. Package Characteristics
Several surcharges are related to the physical attributes of a package, such as:
The dimensional weight surcharge is calculated in inches, as follows: length x width x height/139 (the standard divisor used by parcel carriers, rounded up). The dimensional weight is used as the billable weight when it is greater than the actual weight impact.
- Impact per package: A maximum rate increase of 111% for a one-cubic foot box
- Cost-saving alternative: Reduce box size. Evaluate alternatives such as kraft or poly mailers, mailer boxes, or a mailer automation. Also review your product size and any secondary packaging, such as a folding carton, to see if there are ways to reduce dimensions.
The additional handling surcharge comes into play when the parcel weight is more than 70 pounds, the length is greater than 48 inches, or the package width exceeds 30 inches. This also impacts odd-shaped packages, such as those that are cylindrical, or products that are not fully encased in the outer carton, as well as soft-sided packs with dimensions greater than 18x13x5 inches.
- Impact per package: $13.50 - $14.25
- Cost-saving alternative: Optimize the outer shipping container based on product fragility and network. Utilize multi-weight/freight by ground pricing when possible.
Oversize/large surcharges come into play when the length is greater than 96 inches or the length + girth is more than 130 inches (Girth = (2x width) + (2 x height)).
- Impact per package: $90 -$115
The unauthorized/over max surcharge applies when the weight is greater than 150 pounds, the length exceeds 108 inches, or the length + girth is more than 165 inches.
- Impact per package: $675 - $850
- Cost-saving alternative: Ship less-than-truckload (LTL) network/split shipment (utilize multi-weight or freight by ground pricing).
3. Value-Added Surcharges
There are several surcharges related to the non-transportation services provided by carriers.
The address correction surcharge is incurred when the shipper provides an inaccurate or incomplete address.
- Impact per package: $14 – $16
- Cost-saving alternative: Flag customers to avoid repetition, implement software solutions to catch and correct incorrect information.
The third-party billing surcharge occurs when any shipment is charged to a third-party account unrelated to the shipper.
- Impact per package: 2.5%
- Cost-saving alternative: Add the fulfillment facility to a master account so that the original shipper is charged, eliminating the third-party fee. Also, consider drop shipping to further reduce costs.
The declared value surcharge translates into the maximum carrier liability for lost or damaged products.
- Impact: Between $0.90+ per $100 ($3 minimum)
- Cost-saving alternative: Is it worth adding a liability amount to the parcel? Evaluate claims filed and paid against the cost of declared value premiums, external insurance, etc. to determine viability.
As you can see from the scenarios and discussion above, base rates account for only a portion of your parcel spend. It’s critically important to understand what’s driving your parcel expenses prior to implementing cost-saving fulfillment alternatives or re-negotiating your contract terms with the carriers.
Utilize operational factors to reduce parcel spend when applicable and analyze optimal fulfillment strategies. This means looking at the number of fulfillment centers, ship-from-store, 3PLs, and drop ship options at your disposal, and utilizing these options to provide cost-saving delivery options whenever possible.Ivan Brewington is Director, Parcel Packaging Solutions at Pregis.