While just an opinion, if I had to guess I’d say that peak season surcharges and other newly instituted charges are not going anywhere soon; nor is the practice of routinely instituting new surcharges.
Let’s first consider UPS. For starters, on their Q3 2021 earning call, they stated that they made an additional $550 million in peak season surcharges over a 12-month period. Taking that as very, very, true, why would they pull that back? Then there is the new nomenclature for Peak Season Surcharge. It will become Peak/Demand Surcharges. That new nomenclature is plural. I think it’s fair to assume we can expect many more.
Additionally, UPS is instituting a new surcharge called US48. This is essentially in addition to their current Delivery Area Surcharge (DAS). Again, this is a new surcharge which is not currently included in clients’ contracts. This means that clients, presumably no matter how big or small, will have to pay this entire fee without any discount until they are able to renegotiate their contract. More on this below.
From the same earnings call, they stated that over 50% of their largest clients took rate increases and that of their 12% increase in additional revenue per piece, a bit more than half of that 12% came from the increases to surcharges.
Returning to the new US48 fee, let’s consider their willingness to renegotiate in light of some of their surprise surcharge increases. I quote, their “contract renegotiations have gone very favorably” and that they are asking clients that do renegotiate to sign longer term contracts.
When read together, their increased unwillingness to negotiate, the ability to add new fees which generate huge amounts of profit and clients being left with very little near-term recourse, signals that these increases, especially the peak/”demand” season surcharges are here to stay for the foreseeable future.
Now turning to FedEx. It’s by my experience in 2020 and 2021 that FedEx has been more willing to renegotiate contracts with their clients. This may be a matter of corporate choice or UPS resting strongly on their superior on-time % and FedEx trying to win on rates given their inferior on-time %. Perhaps a combination. This does not, however, mean they don’t play from a similar playbook as UPS.
As an example, FedEx no longer uses the USPS to assist with delivering packages on what once was the SmartPost service. They now have a service called FedEx Economy. Interesting here, however, is that they are charging a $1.00 surcharge for this service. Again, this is a surcharge, not an additional $1 that is caked into the transportation rates. Why?
I believe it’s because by doing so, this too is a new charge which will not be able to be negotiated for existing contracts which means it will not receive a discount. For most shippers, if that $1 was built into the transportation rates, it would be discounted. Again, like UPS, they are using their boilerplate language to allow for the implementation of a completely new charge which they will have no contractual obligation to negotiate.
Sticking with ground economy, just a quick comment. DAS for this service is going to increase by over 50% from 2021 to 2022. Yes, 50%.
Next, lower weights are taking a higher increase. The minimum charge is jumping by nearly 27% in 2022. The good news is that minimum charges can be negotiated so I wouldn’t anticipate many shippers taking the full increase simply by virtue that even on existing contracts, many shippers have some sort of concession. But nonetheless, they are now operating from a much higher number for new clients.
There are several other examples but the takeaway for both shippers is essentially the same. The 5.9% increase in rates is a fallacy. We can anticipate new surcharges for the foreseeable future. Shipping costs are rising faster than the jets this duopoly operates. And based on this, it is imperative that shippers understand the implications these increases have on their bottom lines. ParcelLogix can help clients stay ahead of these increases and mitigate the impact of these rising and one-sided contractual changes. See how much you could be saving with ParcelLogix by taking the guesswork out of renegotiating.
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