The parcel shipping industry focuses a lot on base rates — namely, how much they increase each year, and how those changes will impact shippers.
But according to data Reveel has gathered, base rates only account for about 65 percent of what shippers spend on parcel delivery. The remaining 35 percent comes from accessorial fees and surcharges.
Parcel shipping carriers like UPS and FedEx tack surcharges onto every service they can. Some of these fees apply to packages themselves, like additional handling fees or oversize packages fees.
Others cover delivery expenses, like fees on packages delivered to residential instead of commercial addresses. Some carriers charge when they have to provide a service they shouldn’t have to, like correcting an incorrect address, or provide service during a particular time, such as weekend or holiday delivery.
Finally, there are surcharges that apply to entire shipments, such as fees for fuel, which can vary week to week as petroleum prices rise and fall.
Understanding how these surcharges impact your company’s budget for delivery services is essential — because once you understand them, you can figure out how to reduce them or avoid them whenever possible.
Related: 2019 Shipping Rate Increase Guide
What are Surcharges?
Surcharges are extra fees applied to certain packages or shipments based on extra costs associated with those shipments. It’s a way for carriers to offload specific costs onto shippers, rather than building them into their base rates.
Some surcharges are applied because some packages require additional labor. Additional handling surcharges, for instance, are assessed when parcels are heavy and take more work to move. When package delivery employees have to correct an address, it costs their employer money.
Some packages also require additional fuel. Same-day and next-day delivery typically mean shipment by air rather than ground, and jet fuel is much costlier than truck fuel. Oversized ground packages also burn more truck fuel than light packages do.
A residential delivery is typically more efficient than a commercial one, since residential neighborhoods are less dense than commercial ones and homes typically order fewer packages than businesses do. So, carriers pass a residential delivery surcharge on to shippers.
Dimensional weight pricing, which is an alternative to standard pricing that penalizes large but lightweight shipments, is a form of a surcharge. Space in parcel delivery vehicles is limited. Instead of letting large but lightweight packages take up that space without (in carriers’ eyes) shippers paying their fair share, they instituted dimensional weight pricing, which modifies rates for shipments over certain dimensional thresholds.
Finally, parcel delivery comes with one key variable cost: fuel. Fuel prices change daily, so they’re challenging for carriers to build into base rates, which typically remain in place for a year. Instead, carriers update fuel surcharges every two weeks based on current prices for truck and jet fuel. Then, they apply those surcharges to all shipments, on top of all other fees.
How to minimize parcel shipping surcharges
The simplest way to reduce your company’s spending on parcel shipping surcharges is to make sure that your carrier is charging you correctly for delivery services.
For example, shippers often pay extra fees for same-day or next-day delivery. Those services come with specific promises from carriers, including their deadline for delivering shipments. If the carrier is even 10 minutes late, your contract probably entitles you to a refund. Carriers don’t typically tell you when they have a refund waiting, however — you have to find the missed deadline yourself and then file claims for refunds on those shipments.
Carriers also get things wrong. Your company’s monthly or biweekly invoice lists every single delivery your carrier made during that period. At least a couple of those shipments tend to contain incorrect details — and misapplied surcharges are a very common error.
To make sure invoices are accurate, use an auditing service to identify fees and surcharges that seem inapplicable or incorrect. Then contest them, ideally with the help of a third-party consultant who can go to bat for you.
Reveel’s team does just that. Our proprietary software can help supply chain leaders conduct 45-point audits of every single one of their invoices to catch mistakes. Then, we can take care of the cumbersome claims process on your behalf.
Our experts can also help you gather parcel shipping data on an ongoing basis. Then we can dig into that data for patterns in parcel delivery — such as how much your company spends on various surcharges — and use those patterns to figure out what we should target in your next contract negotiation or how we can redesign your packaging to avoid those extra fees.
That’s the second, and more difficult, way to reduce spending on surcharges: Avoid them.
Surcharges can change at any time. Fees can rise, but parameters can also change, so that a standard shipment that used to be priced according to base rates can start incurring surcharges overnight. It’s possible to reconfigure your packaging or split up shipments differently so they no longer carry those fees.
Parcel delivery is complex and expensive. We know that. And that’s the best part of Reveel’s package: We don’t have any up-front costs.
Reach out today for a free invoice audit to see how Reveel can help you save on parcel shipping surcharges — and every other aspect of your shipping contract too.
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