If you’re a FedEx customer who bills through a third party, you may have noticed an extra surcharge on your recent invoices.

Effective January 22, the Memphis-based carrier added a new third party billing surcharge to its list of accessorial fees. The additional 2.5% fee applies to shipments that billed to an account that isn’t the shipper or receiver.

This new surcharge applies to your entire shipping costs, including your base rates and any other surcharges, amounting to a significant price hike. For example, if your business spends $350,000 a year on shipping, you’ll pay an extra $8,750 with the new surcharge.

Government taxes and duties are not included in this surcharge.

Rival carrier UPS was the first carrier to implement a 2.5% third party billing surcharge in 2016.

“The number of transactions that are going online for third-party arranged shipments has increased to the point where it’s appropriate for us to establish a fee,” a UPS spokesman told the Wall Street Journal in 2015. Applying this surcharge works to ensure the carrier is compensated for its services, the UPS spokesman told the news outlet.

Related: Decoding Your Shipment Data: Surprising Information Your Analytics Reveal

Why is FedEx Adding This Surcharge?

Put simply, the carrier is adding this new surcharge to keep its profit margins intact. As more people are buying more things online than ever before, carriers are scrambling to keep up.

Many of these new packages are small, lightweight parcels shipped to residential areas. These parcels are less profitable for FedEx and UPS because the carriers primarily charge by weight.

Additionally, residential routes are more spread out, which means drivers are making more stops more often.

Many e-commerce companies had also billed their shipments through third-party sellers to take advantage of shipping discounts vendors had been able to secure with carriers.
The third party billing surcharge is just another way for FedEx to pass more of its costs along to consumers. Carriers are also charging more for dimensional weight and adding more ZIP codes to the list of those subject to delivery area and extended delivery area surcharges.

Related: Your Guide to Negotiating Better Shipping Rates

What Can You do to Lower Shipping Costs?

Despite this hefty price hike, there are steps you can take to lower your overall shipping spend.

First, make sure you thoroughly understand your shipping profile. Knowing all the details of your shipments, including details like how much your parcels weigh and where they’re shipped, puts you in a better position to negotiate better rates.

Second, compare rates between carriers. Companies like Reveel shed light on the pricing carriers are offering to your competitors, giving you valuable benchmarks you can use in contract negotiations.

Third, renegotiate your contract. Carrier contracts are long, convoluted, and confusing, which means there are almost certainly opportunities for discounts on certain fees and surcharges. Companies like Reveel can prepare you for the negotiation process by reviewing your current contract and helping you spot those opportunities.

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