Most people understand the basic concept of fee rates and surcharges. Everything costs money, including the operating costs involved with moving goods from Point A to Point B in the supply chain. Many shippers and merchants alike have a basic understanding of shipping surcharges but they might not realize how many different types of surcharges there are and the purpose of each. Knowing exactly what a freight surcharge is, why they happen, and what can cause them to increase can help shippers and consumers alike better understand the extent to which shipping surcharges impact their shipping costs and how these surcharges are changing the face of shipping management.
I. Why Shipping Surcharges Exist in the First Place
Shipping surcharges obviously have increases in fees and additional charges that are placed on certain orders and shipments. They often show up on invoices as several different things: handling, processing, peak season, or shipping add-on. Regardless of what they are called, these fees are added to the already listed base price for the shipment that has been calculated and paid for. Surcharges are often vague and confusing unless they are clearly explained on invoice statements.
Typically, carriers adjust the base shipping rates on a monthly, bimonthly, or annual basis. Additional fees for things like fuel, vehicle maintenance, and typical work schedules for drivers or employees can be adjusted monthly or even weekly. This can lead to unexpected jumps in shipping prices, especially if multiple surcharges change at the same time—such as an increase in fuel charges, higher insurance rates, and peak season charge increases. Even an overall increased surcharge of only 20 cents can mean huge fee increases when multiplied across thousands of packages and loads for an entire week or month.
Surprisingly, one of the underlying reasons for surcharges is the lack of available drivers and trucks to handle capacity at the current level of demand. There are not enough skilled drivers entering the supply chain workforce to replace those that are aging out, retiring, or leaving for other careers. A report by Forbes brought this crisis to light, highlighting that “there is one qualified driver for every 9 job postings. The trucking industry is very fragmented, with the bulk of drivers working at small firms. 89% of trucking companies have one to five trucks. With the average price for a Class 8 truck at $59,377 in July compared with $40,666 a year earlier, margins are heading lower, making it even less attractive for independent contractors to enter the industry.” This growing driver shortage is only pushing existing fleets thinner and thinner and causing more strain on an already stretched supply chain. To compensate for all this, surcharges are often levied.
Merchants and shippers alike must always be watchful for announcements and indications that rates will be increasing among their chosen carriers. They must also be able to determine how these surcharges will impact their shipping costs and consider factors such as the weight of their shipment, the size of their cargo, where their load is heading, what mode of transportation is being used, and how current fuel costs are trending. Failure to monitor listed surcharges will most likely lead to shippers paying significantly more for their shipments despite the availability of cheaper options. So, a good understanding of shipping surcharges and transportation spend management is needed for shippers and association merchants to better plan for budgeting costs and expenses.
II. Types of Shipping and Freight Surcharges Shipper Must Watch For
A broad spectrum of shipping surcharges often get tacked on to shipments, which can have a huge impact on shipping costs. At the same time, these surcharges can cause confusion among logistics management teams and supply chain directors who are trying to budget for costs and maximize profits. The following breakdown of freight surcharges can help alleviate some of the confusion so supply chain managers can best decide how to avoid unnecessary shipping costs and surcharges.
Fuel Costs and Related Surcharges
Fuel surcharges are some of the most common and most costly of the shipping surcharges. These fees are generally calculated on an ongoing basis and are directly related to the current price of fuel. As fuel costs rise so do the surcharges because it is important that fuel costs are always covered. Without accounting for rising fuel costs, shippers most likely cannot cover that basic operational expense and will be facing a deficit. Tracking changes to fuel surcharges is important because even a small shift of only ten cents per gallon surcharge can quickly add up to a significant amount of money in unexpected costs when drivers are logging thousands of miles every week. These costs are also updated on a weekly basis for large parcel costs, continuously changing total surcharge costs for shipping.
Fuel Surcharges: Tips for Shippers
Fuel surcharges often translate into higher and unpredictable shipping costs due to the volatility of the international oil market and associated rising fuel costs. Many shippers are unaware that, in some instances, these fuel costs can be negotiated with carriers on an individual basis. This can help lower fuel-related costs, especially when working with long-term carriers where a relationship and rapport of sorts has been established over time. So, it is worth discussing fuel rate increases with a preferred carrier to shave even a few pennies off the rate increase, if at all possible.
Residential Delivery Surcharge
For shipping companies that routinely make direct residential deliveries, understanding residential delivery surcharges and how they can impact shipping costs is critical for managing freight surcharges. As the name suggests, residential delivery surcharges get levies on deliveries made to residential dwellings. This charge exists because it takes more time to deliver 15 packages to 5 houses than it would to drop off 15 packages at a front desk or at a warehouse loading dock. It is much more labor and time intensive to drop off deliveries at multiple doorsteps.
Residential Surcharges: Tips for Shippers
The best way to reduce residential surcharges is to choose carriers based on where customers are located. Giving residential packages and customers to carriers known to charge less for home deliveries can help you avoid excessive surcharges. The same goes for commercial-type deliveries. Finding a carrier of choice that offers the best rates and shipping service for that customer type can pay great dividends in the long run. Taking advantage of alternate shipping networks can allow shippers to avoid costly residential delivery fees, which is a good thing. These fees continue to rise rapidly, primarily due to the influx of home deliveries driven by the e-commerce boom. Utilizing data to make informed business decisions throughout market disruptions allows you to prepare, plan and help reduce or avoid these costs.
Oversize Package and Parcel Surcharge
This surcharge gets applied to shipments that exceed the weight or size thresholds set by individual carriers. Incurring an oversize package surcharge can result in a substantial increase in shipping costs for shippers. Knowing what weight and size limits apply across your chosen carriers can help shippers avoid these fees as much as possible.
Oversize Surcharges: Tips for Shippers
Suppose shippers frequently deal with a large number of oversize or heavy packages. In that case, they may need to negotiate with their carrier regarding special discounts or services to accommodate that regular work while compensating for the oversized aspect. If that does not work and the surcharges are getting to be too much and too frequent, then it may be in their best interest to partner with another carrier.
Weekend deliveries can be exceedingly costly and can significantly drive up expenses for shippers. For weekend deliveries, many carriers apply high surcharges that are often passed on directly to the customers. This most certainly can have a negative impact on consumer relationships. Hence, it is always in a shipper’s best interest to balance the demand for quick 1- or 2-day shipping with the increased expenses associated with that expedited delivery timeline.
Weekend Surcharge: Tips for Shippers
To keep customers satisfied, shippers must explore alternative avenues of delivery. One of the simplest ways to avoid these shipping surcharges is to ship packages via USPS Priority Mail, which does not add fees for weekend shipments. Many consumers show that they are willing to pay an additional fee for faster delivery on the weekend. Still, there are limits to what customers are willing to absorb in extra shipping fees. So, taking advantage of free shipping options and strengthening carrier relations cannot and should not be overlooked.
III. Other Shipping Freight Surcharges Shippers Need to Watch For
The surcharges mentioned above are only the most common ones shippers see. Many other less common surcharges can also substantially impact shipment costs. Bloomberg recently reported that “the higher shipping costs have been sparked by a combination of factors, including soaring demand amid stimulus checks, saturated ports, and too few ships, dockworkers and truckers. The problems are too broad to be remedied by any short-term fix and are creating ripple effects across U.S. supply chains.” This all translates into even more surcharges being levied against shippers. These surcharges can include:
Signature Request and Verification Fee
This surcharge is frequently applied to packages that require a special signature, adult receipt, or proof of delivery. The added work of not simply dropping off the box and the added paperwork and back-end work required is used to justify this surcharge.
Peak Season Shipping Fee
A recent example of these surcharges was highlighted by TotalRetail’s Shipping Insights report from earlier this year: “both FedEx and UPS have announced “peak” surcharges to apply this holiday season and beyond. While they might initially sound innocuous, detailed analysis reveals these added surcharges pack a wallop.” The more product there is to move, the more valuable every load becomes with the current driver and extra capacity shortages. The result is peak season freight surcharges.
Same or Next Day Delivery Fee
Thanks to the “Amazon Effect,” customers today expect fast and affordable, if not free, shipping to be the norm. While quick shipping often comes with minimal additional expenses on the customer’s side, same-day or next-day shipping usually carries an extra surcharge that must be accounted for somewhere in the budget.
Address Updates and Corrections Fee
Corrections are needed when the address associated with a shipment is incomplete or incorrect. This is discovered when a carrier tries to process that order for delivery and cannot determine where it is heading, which means it cannot be loaded onto the right truck or cargo container. This insufficient address is something that the carrier must correct, and this almost always incurs a hefty fee due to the sheer amount of effort involved.
Weekly Pickup Service Addition Fee
This fee usually is applied to shippers who have regularly scheduled pick-ups from a carrier. When the carrier is expected to come by daily or weekly at a set time or on some set frequency, this specialized service usually incurs a fee. Rather than simply getting to the business or residence whenever they can, designated pick-up times put more pressure on the carrier and thus cost more than standard pick-up services typically run.
IV. How to Lessen or Outright Avoid Shipping Surcharges
The best way for shippers to manage these fees and surcharges is to better understand how shipping surcharges work and why they are being applied to orders and shipments. By understanding the different shipment options available, shippers can lessen or outright avoid some of the biggest shipping surcharges. Here are some of the best ways shippers can take action and utilize solid business intelligence and surcharge tracking to lower fees, starting right now:
Stay Up To Date on Terms, Rates, and Normal Processes
To avoid overpaying for shipping surcharges, shippers must make more intelligent choices about how their packages are shipped. From avoiding surcharges related to oversized items or specialty delivery routes and drop-offs, several things can be tweaked and adjusted to avoid excessive shipping surcharges and freight fees. Knowing what options are available and which choices directly impact fees can help shippers make more informed choices as they plan routes and process orders.
Capitalize on Innovative Shipping Options Such as Zone-Skipping
Zone skipping is a method of freight consolidation wherein brands can consolidate their parcel or freight loads to maximize the use of available capacity and cargo space. Those loads are transported across multiple zones, skipping areas when shipments can be shipped via ground and still arrive on time. Injecting them into a local LTL or FT hub can effectively lessen the total shipping costs without sacrificing delivery expectations and saving shippers time and money by skipping over shipping handling fees and processing charges that are not necessary when scaled across many shipments. Of course, this hinges on having access to aggregated data from across multiple systems, compiled in a similar format—in other words, normalized, and analyzed with world-class resources, like those available through a partnership with Intelligent Audit.
Evaluate Current Standings With Carrier Contract Renegotiation
Shippers who know their history and current rates and trends have quickly spotted shifts in carrier rates and fees. When these occur, the shipper has the data-driven evidence when they approach the carrier to negotiate rates and a a contract renewal. Carrier contracts are a two-way street and are vital for both parties. Shippers need reliable assistance with parcel shipping, and carriers need customers to keep them in business. Carriers may raise many surcharges and fees at once, so negotiating a lower rate or cost may be easier than many shippers realize. And even knocking off a few pennies on every shipment can help reduce the impact of freight surcharges.
Embrace Innovative Processes and Services From Third-Party Providers Like Intelligent Audit
Shipping surcharges and freight rates change frequently. Even with the best data and tools, it is nearly impossible for shippers to track and successfully manage freight surcharges on their own. Utilizing a 3PL can help shippers and merchants find the best transportation service options, available carrier networks, and shipping modes. Partnering with third-party providers effectively boosts profits, reduces shipping surcharges, and better manages shipping budgets. To make the most of these innovative options, contact Intelligent Audit today for more information and to get started.