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03 Sep Parcel Peak Season Surcharges: UPS, FedEx Demand Surcharges Hit New Highs

Posted at 01:00h in Carrier Contract Negotiations, Parcel Invoice Auditing, Transportation News by

It will cost you more than ever to ship packages this parcel peak season.1 The best way to mitigate the impact of hefty UPS & FedEx demand surcharges, fast-rising fuel surcharges, and costly surge fees, is to have SSI team you up with our expert parcel carrier contract negotiators and data-analytics professionals.

Possessing deep parcel industry knowledge, our group can help you ease the impact of the eye-popping surcharge increases, renegotiate and manage carrier contracts, and optimize your spend more consistently and cost-effectively. Further, our parcel audit services provide long-lasting savings as we verify the validity of each charge on every invoice. Act now to mitigate these new cost increases so you can maximize your savings this peak season and beyond. Contact us today.

UPS came first out of the gate this year to communicate demand surcharges that significantly exceeded last year’s parcel peak season levels.2 Some believe the carrier, which last year inked a multibillion-dollar labor agreement with the Teamsters, chose to be the early mover in order to cover those labor costs (and then some!). Others wonder if after providing discounts to attract new shippers earlier this year, the carrier is now eager to boost revenues at a time when most customers are shipping their highest parcel volumes of the year. Both points sound valid and by aiming high, UPS was able to re-set shipper cost expectations for the fall, holiday, and post-holiday shipping season.

UPS and FedEx often move in lockstep when it comes to rate and surcharge hikes.3 This peak season is no different. FedEx simply waited one month after UPS to make their announcement with similar demand surcharges.

PARCEL PEAK SEASON: WHEN DOES IT START?

You may be surprised to hear UPS and FedEx believe you should be paying some peak season demand surcharges as early as this month. You’ll pay extra for oversized/overweight/additional handling packages on Sept. 29 (UPS) or Sept. 30 (FedEx).

Whether you ship by ground, air or some combination of the two, you’ll pay extra on all shipments starting on Oct. 27 (UPS) or Oct 28 (FedEx). The demand surcharges will extend well into January.4

Let’s dig into the details below. First, we will first cover the UPS demand surcharges and also a new UPS surge fee that applies to shipments originating out of Asia.

We will then review the FedEx demand surcharges. The carrier has not yet communicated Asian surge fees, but experts believe the company may soon do so.

Towards the end of this post, we provide information on another hot topic: the recent, substantial fuel surcharge increases. Of great frustration to shippers, these fuel surcharge costs are up even though current diesel fuel prices are down compared to last year and substantially lower than two years ago.

PARCEL PEAK SEASON: UPS DEMAND SURCHARGES

UPS was clever in how they are leveling their peak season surcharges on all standard ground and air parcels this year.

  • UPS created a surcharge for shipments from Oct. 27 to Nov. 23, 2024.
  • That surcharge then doubles from Nov. 24 to Dec. 28. A new “peak within a peak surcharge”, if you will. This is the first time UPS has bumped prices up twice within a peak season.
  • Starting Dec. 29 and extending to Jan. 18, the demand surcharge falls back to the amount levied from Oct 27 to Nov 23.
  • This is twelve full weeks of parcel peak season rates!
  • Of note, because these are new demand surcharges, discounts you previously negotiated will not apply.5
  • Also significant, the highest peak surcharges hit right as shippers are focused on holiday sales that can make or break their results for the year. This provides UPS with leverage that may minimize customer pushback.6

So, whether you ship via UPS Air, UPS Ground Residential, or UPS SurePost, you will pay more. Here are the specifics:

  • A $0.25-cent per package extra fee from Oct 27 to Nov. 23 and from Dec 29 to Jan. 18 for SurePost and Ground Residential packages.
  • A $1.00 per package extra fee for UPS Air packages during those same time periods.
  • A $0.50-cent per package extra fee for SurePost and Ground Residential packages from Nov. 24 to Dec. 28.
  • A $2.00 per package extra fee for UPS Air packages during that same time period.7

For oversized or overweight packages, you can expect UPS’s peak season Additional Handling Surcharge to be anywhere from 12 to 44% higher and Large Package Surcharge to be anywhere from 13 to 32% higher than last year. For further details, see this helpful post from AFS Logistics.8

UPS ANNOUNCES NEW “SURGE FEE” ON ALL US IMPORTS COMING FROM 13 ASIAN LOCATIONS

Effective Sept. 15, UPS will levy a per-pound surge fee on most Asian shipments bound for the US. This fee will be especially painful for high-volume shippers.

As reported in Supply Chain Dive, Mingshu Bates, chief analytics officer at AFS Logistics said, “This is probably a way for them to mitigate the low-yield problem from Shein and Temu.”9 That’s a great observation, as UPS has experienced a significant surge in volume from Asia this year from these two e-commerce giants.

Of course, the new fee applies to you and every other shipper as well. Due to the mid-September timing, this may be considered another peak season surcharge. However, the UPS announcement does not list an end date. It simply states the surge fee could be adjusted in the future. So, you may be paying this new fee forever. Even worse, because this is a new surcharge, any previously negotiated discounts will not apply. Further, fuel surcharges will also be applied to the surge fee. Ouch.

In summary, here are the UPS surge fee details.

A $0.50 per-pound charge will apply to shipments from:

  • China
  • Hong Kong
  • Macau

A $0.25 per-pound charge will apply to shipments from:

  • Australia
  • Japan
  • South Korea
  • Indonesia
  • Malaysia
  • Philippines
  • Singapore
  • Taiwan
  • Thailand
  • Vietnam

Experts believe FedEx will soon make a similar surge fee announcement.10

UPS RATIONALE FOR THESE HIGHER & NEW PEAK SEASON SURCHARGES

This year, there are only 17 business days between Thanksgiving and Christmas – less than usual, which means UPS needs to have capacity for what they expect to be higher than normal holiday shipping volume in that time period.

As reported in Logistics Management, UPS CEO Carol Tomé shared this on the company’s Q2 earnings call: “And as we look at the volume projections for peak, we are expecting on our peak day, which is December 18, has the highest volume ever in our network,” she said. “Now, when you have that kind of volume flowing to your network, you actually have to charge to service them well because you have to hire people and lease aircraft and delivery vehicles, so on and so forth. We think that the prices are going to stick because of what the environment is telling us from a demand perspective.”11

UPS NEEDS TO BOOST REVENUE TO PLACATE INVESTORS

Beyond the stated rationale for the new and higher surcharges, “Big Brown” is navigating multiple challenges this year:

  • The UPS stock price dropped 12% immediately after their Q2 earnings call. Why? Operating profit dropped 30% on lower revenue. Further, management had to scale down its revenue guidance for the year.
  • So, what happened? Aside from their higher labor costs, UPS has experienced a surge in e-commerce volume demand for the slower, value-priced UPS SurePost offering. Many existing customers “traded down” to save on shipping costs. 9 Further, the previously mentioned high-volume business from customers such as Shein and Temu is primarily shipping via SurePost.12
  • Seemingly, the lower UPS SurePost margins may have contributed to the UPS Q2 revenue miss. So, the new surcharges provide an opportunity for UPS to increase revenues in Q4 and into Q1 of 2025.
  • On top of all this, UPS is onboarding new volume from the US Postal Service prior to the holidays. Logically, the incremental USPS volume will further stress the UPS network capacity.13, 14

PARCEL PEAK SEASON: FEDEX DEMAND SURCHARGES

FedEx could have undercut the higher UPS peak season surcharges this year, but instead, they announced similar increases.

  • FedEx adopted a “peak within a peak” scheme, just like UPS did.
  • The increases start Sept. 30 for packages that are oversized, unauthorized, or require additional handling.
  • Then, on Oct. 28, demand surcharges take effect for shipments across various FedEx delivery services. The FedEx peak season fees end Jan. 19, 2025.
  • On most air and ground shipments a demand surcharge will be assessed from Oct. 28 to Nov. 24. A higher level surcharge will then be charged Nov. 25 to Dec. 29. From Dec. 30 to Jan. 19, the surcharge will revert back to the initial figure.

To elaborate, whether you ship via any of the FedEx Overnight, 2-Day, Express Saver, Ground or Ground Economy services, you will pay more.

  • A $0.30-cent per package extra fee from Oct. 28 to Nov. 24 and from Dec. 30 to Jan. 19 for FedEx Ground Residential and FedEx Home Delivery shipments. From Nov. 25 to Dec. 29, the surcharge jumps to $0.55-cents per package.
  • Those of you who use the contract-only FedEx Ground Economy Package Services may be in for a rude awakening. Your surcharges will jump by $1.90 per package and then leap up to $3.15 per package in the Nov. 25 to Dec 29 timeframe.
  • All air shipments will receive a $1.00 per package demand surcharge, which increases to $2.00 from Nov. 25 to Dec 29. 15

For packages requiring additional handling, a surcharge of $7.75 will be assessed and that jumps to $10 per box in the Nov. 25 to Dec 29 window. Oversize charges range from $8.45 to $100 per package.

FEDEX RATIONALE FOR THESE HIGHER DEMAND SURCHARGES

As in previous years, FedEx said the surcharges allow the carrier to prepare for high demand and maintain strong service during the holiday shipping rush.16

Unsurprisingly, FedEx is also looking to benefit financially as shipping volumes surge in the months ahead. The carrier is undergoing a wide network consolidation and an immense cost-cutting program of up to $4 billion by 2025.17

As reported by MSN, in a June earnings call to investors, Chief Customer Officer Brie Carere said she was “incredibly pleased” with the company’s pricing performance in the current market, and how it played into the prior peak season. “We’re very focused not just on total yield but getting yield in the right place where we need it… I think our team is doing the very best in the market at getting peak surcharges.” Carere also said. “The team has done a really good job in getting the increase we need to deliver an amazing peak where we do have to expand capacity.”18

Obviously, you and your team should dig deep into the FedEx demand surcharges and UPS demand surcharges so you understand how they will impact your business. Need help? As mentioned in the introduction, SSI can team you up with expert parcel-carrier contract negotiators and data analytics professionals to help you negotiate rates, manage carrier contracts, and optimize your parcel spend. Start saving now. Let’s talk!

ONE MORE THING: FUEL SURCHARGES ALSO SURGE AHEAD OF PEAK SEASON

UPS announced changes to the fuel surcharge calculation logic effective Aug. 15, 2024, along with another 0.75% to 1.25% increase on fuel. More surcharges will be added for the fuel surcharge base, including Address Correction, Chargeback Surcharge, HazMat (Accessible, Inaccessible, Dry Ice, etc.), and COD.

Remarkably, the UPS fuel surcharge will go through the sixth change since December. The total increase for the Ground fuel surcharge is 3%. Of note, during the same time frame, on-highway diesel fuel prices, upon which the Ground fuel surcharge is based, decreased by 9.9% from $4.092 to $3.688 per gallon.

We encourage you to regularly check the updates on UPS fuel surcharges and FedEx fuel surcharges.

ABOUT SSI

No matter how your supply chain is organized today or will change to in the future, SSI can protect you from wasting money on your shipments with our best-in-class parcel & freight audit solutions.

At SSI we transform the complexity of global freight audit into cash savings and supply chain intelligence, providing actionable insights to maximize your profit potential.

  • Customizable solution scales with your growing and dynamic business needs.
  • Automated freight audit drives savings to your bottom line.
  • Fintech platform pays freight invoices in 100+ currencies, at favorable exchange rates.
  • Actionable business intelligence supports your supply chain optimization efforts.
  • Cutting-edge data visualization facilitates your analysis of data and trends.

Want to learn more? Our team is eager to help you save money. Contact SSI.

Footnotes:
1, 2, 3, 12. Ian Putzger, “Customers will accept ‘double-whammy’ of peak surcharges, reckons UPS CEO“. July 31, 2024, as published by The Loadstar.
4, 15, 16. Max Garland, “FedEx rolls out pricier surcharges, new fees for 2024 peak season“. August 15, 2024, as published by Supply Chain Dive.
5, 7, 8. AFS blog post, “This Won’t Hurt A Bit*: UPS Unveils 2024 Demand Surcharge Increases (*Because It Will Actually Hurt A Lot)“. August 7, 2024, as published by AFS Logistics.
6. Fast Company News in coordination with Reuters, “Why UPS’s holiday surcharges and shorter peak season could backfire“. August 8, 2024, as published by Fast Company.
9, 10. Max Garland, “UPS plans surge fee for all China-to-US imports“. August 20, 2024, as published by Supply Chain Dive.
11. Jeff Berman, “UPS rolls out new peak demand-based surcharges“, July 25, 2024, as published by Logistics Management.
13. Max Garland, “USPS sees steep drop in expedited shipping demand“. August 12, 2024, as published by Supply Chain Dive.
14. 24/7 Staff, “Amazon and UPS Announce Rate Hikes for 2024 Holiday Season“. August 12, 2024, as published by Supply Chain 24/7.
17, 18. Glenn Taylor, “FedEx Revives Demand Surcharges for 2024 Holiday”. August 18, 2024, as published by MSN.

SSI blog post entitled: Parcel Peak Season Surcharges: UPS, FedEx Demand Surcharges Hit New Highs