FedEx will only implement a holiday surcharge on large packages

As reported by Digital Commerce 360
Thursday August 3, 2017

FedEx says larger packages shipped through its network have grown by more than 200% since 2007.

In sharp contrast with rival UPS Inc., FedEx Corp. on Thursday announced it won’t levy a surcharge during the holidays on most packages shipped through its network.

The shipping carrier to 318 retailers in the Internet Retailer 2017 Top 1000 said it will only levy a surcharge on packages shipped via FedEx Ground or Express from Nov. 20-Dec. 24 that are oversized, require special handling or are unauthorized.

FedEx defines unauthorized packages any package that is more than 108 inches long, 165 inches in length and girth, or weighs more than 150 pounds. The additional handling surcharge applies to any package that is not fully encased in an outer shipping container, weighs more than 70 pounds, or is one that measures 60 inches at its longest side or 30 inches at its second longest side.

According to FedEx’s website, surcharges for those three categories of packages during the holiday season are as follows:

  • Additional handling: $14 (normally $11)
  • Ground unauthorized: $415 (normally $115)
  • Oversize: $97.50 (normally $72.50)

FedEx says the large-package surcharge is meant to help it deal with a category of packages that has grown by 240% since 2007.

“These packages consume an inordinate amount of cubic space in FedEx Ground and FedEx Express equipment in the U.S. and Canada,” writes Patrick Fitzgerald, FedEx senior vice president of integrated marketing and communication. “There is a significant shift, largely driven by growth of e-commerce and expansion of e-commerce into sports equipment, furniture, mattresses and other things that weren’t largely available on e-commerce 10 years ago,” he said.

One business that will feel the impact of this surcharge is online art dealer UGallery.com, No. 754 in the Internet Retailer 2017 Top 1000.

UGallery co-founder and CEO Stephen Tanenbaum, who learned of the surcharges Thursday, says at least half of his company’s packages fall under one of the three categories that FedEx will be levying a surcharge on during the holidays. “We’ll definitely see [an impact due to the surcharges] and we’ll have to look at it internally and run the numbers,” he says. “We’re gonna have to shuffle some things around to make sure this doesn’t have a detrimental impact [on our business].”

Tanenbaum says it’s too early to know what changes he and his team will have to make in order to ensure the surcharges don’t have too great of an impact on the company’s overall bottom line.

One thing that won’t change, he says, is UGallery’s free shipping and returns policy. Tanenbaum says that’s something shoppers have come to expect in the age of Amazon, and it’s something UGallery is going to continue to offer so that it is able to remain competitive.

“On the business side, every business is going to have to try and find ways to continue offering that because (free shipping) is not going anywhere,” he says. “It’s continuing to find ways to make it work so we can continue to service and provide that value add to what the customer expects. We want our customer buying experience of buying original artwork to be as easy as it is buying your shoes off Zappos or buying any other household item off of Amazon.”

Retailers that sell auto or bike parts online, home improvement products or furniture will be hit the hardest, says Baris Tasdelen, senior transportation analyst from enVista, a supply chain consulting firm. “With that said, many retailers have SKUs that will be hit by large package or additional handling surcharges,” he says.

The decision to not apply a peak surcharge for all residential deliveries “will be a relief for FedEx shippers,” Tasdelen says. However, “the surcharge adjustments FedEx is implementing are broader than UPS. UPS will increase the large package and over max limits charges; whereas FedEx will increase the additional handling surcharge on top of the large package and unauthorized package charge. FedEx will charge $415 and UPS will charge $399 for over max/unauthorized boxes during peak.”

FedEx’s announcement comes a month and a half after competitor UPS rolled out its holiday surcharges, which encompass all packages shipped through its network, and not just the larger ones. Most notably, UPS is adding a 27-cent surcharge on packages shipped via Ground Residential from Nov. 19-Dec. 2 as well as from Dec. 17-23. As with FedEx, larger packages also will be hit with an additional fee when shipped through UPS. UPS said at the time that packages that “exceed maximum size limits” from Nov. 19-Dec. 23 will face an additional, unspecified surcharge.

FedEx’s decision to forgo surcharges in most cases may reflect its capacity to handle more packages than it currently does during the height of  the holiday season. “FedEx is smaller on the ground side than UPS and they can probably take a little more volume during peak,” said Kevin Sterling, an analyst with Seaport Global Holdings. “It’s going to let UPS be Scrooge at Christmas.”

Tom Craig, president of supply chain consultancy LTD Consulting, says retailers likely to be most affected by the carrier surcharges are smaller retailers, especially those who ship goods that don’t fit into standard packaging. The good news for those merchants  is they can use the shipping carriers as a scapegoat, he says.

“You’re going to have to blame UPS and FedEx,” Craig says. “[Tell your shoppers] ‘Based on the shipments, we’re going to have to add to the cost.’ I think (smaller) retailers are going to have to eat it. If I’m a small guy, I’m going to have to pass it on [to the consumer].”

Sterling says the carriers’ larger retailer clients with contracts won’t be affected by the surcharges.

As e-commerce has surged, both carriers have spent millions to upgrade and expand their networks of sorting and delivery centers. Base rates for UPS and FedEx increased 4.9% for 2017, starting Dec. 26 for UPS and Jan. 2 for FedEx.

“UPS’s peak season pricing positions the company to be appropriately compensated for the high value we provide at a time when the company must double daily delivery volume for six to seven consecutive weeks to meet customer demands,” a UPS spokesman said Thursday. He declined to comment on FedEx’s announcement.

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Ken Wood is the founder of LJM Consultants. LJM helps clients negotiate “Best in Class” UPS/FedEx agreements. LJM was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. To learn how LJM Consultants can help your company get the parcel contract you deserve, call 631-844-9500 or email kenwood@myLJM.com.