Reveel Resources

Let’s Talk Money: Comparing FedEx and UPS Surcharges

Comparing FedEx and UPS Surcharges

FedEx and UPS pretty much have a duopoly on the shipping industry, at least for now. Almost every retailer or manufacturer that ships nationwide has to maintain a contract with one or both shippers. And that’s allowed both carriers to raise rates in locksteps, and for one to follow the other when they introduce new shipping rates.

But there are a few key disparities in FexEx and UPS’s rate structures. Companies that can strategically analyze these differences and take advantage of them can save precious dollars on their shipments — and set themselves up to negotiate more favorable contracts in the future.

Related: Compare Shipping Rates: Your 2018 Carrier Rate Guide

Step 1: Know Your Shipping Profile

Above all, Reveel preaches knowing your data. That means collecting information, ideally in real time, about what you’re shipping, how much each parcel weighs, what the dimensions of those packages are, how far each one travels, and how much of each item you ship.

It also means monitoring your invoices to understand how the shipping rates affect your company. For example, Reveel encourages our clients to keep track of how much they spend on oversized package charges, additional handling fees and holiday surcharges. That way, when these delivery fees increase — and they almost always do from one year to the next — you can easily understand how those increases will affect your shipping costs.

Yes, FedEx and UPS increase their base rates every year. But it’s these additional fees and surcharges that tend to take companies by surprise.

For example, this year, FedEx reduced the dimensions of packages that require additional handling surcharges by 20 percent, from 60 inches on the longest side to 48 inches on the longest side. If your company ships a product that is between 4 and 5 feet long, then suddenly, you’ll have to pay additional handling surcharges on each of those parcels.

Step 2: Know Where FedEx and UPS are Similar

Both UPS and FedEx raised rates across the board by 4.9 percent last year, and have increased rates in lockstep for more than a decade. And when we look closely at additional fees and surcharges, FedEx and UPS aren’t quite synchronized — but each parcel service carrier tends to follow the other’s lead.

For instance, in 2016, UPS imposed a small percentage fee on third-party billing. FedEx resisted this move for two years, but announced the addition of a 2.5 percent third-party billing fee in its 2018 rate increases.

Both competitors have been dropping their dimensional weight divisors for about five years, and while they haven’t always moved in unison, they tend to end up at the same place. In 2018, the last two holdouts — FedEx Smart Post and UPS packages smaller than one cubic foot — reducing their dimensional divisors to 139, matching dimensional divisors industry-wide.

Step 3: Know Where FedEx and UPS are Different

It’s in the differences between FedEx and UPS that companies can identify savings opportunities. By understanding these disparities and applying them to your company’s data, you can identify the charges that are most likely to eat into your shipping spend — and figure out how to avoid them.

For example, in 2017, both FedEx and UPS introduced holiday surcharges. Their approaches varied significantly, however. UPS varied rates week to week according to demand, with fees ranging from 27 cents to 97 cents, but applied them to all packages.

FedEx increased only its additional handling fee, adding $3 to ship packages over a certain size or weight. For the largest packages, fees increased dramatically: FedEx added a $25 surcharge to oversize packages on top of the usual $72.50 fee, and a $300 surcharge to “unauthorized” packages, which carry a base fee of $115.

A Wall Street Journal report from August 2017 called FedEx’s decision a “gamble,” pointing out that these large and heavy packages only make up about 10 percent of the company’s shipments during the rest of the year, and that volume doubles during the holiday season.

UPS plans to use a similar strategy for the 2018 holiday season. FedEx has not yet announced its 2018 peak season surcharges.

Putting This Information to Work

Reducing your shipping costs is about finding the carrier whose price sheet best matches your needs. But to do so, you need to know both the carriers’ models and your own shipping profile in detail. Here, a side-by-side comparison is helpful.

Need help getting started? Contact Reveel today to connect with a consultant.