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Jun-08-2018 09:44printcomments

Surcharges Stealing the Show

Fuel prices are blamed for huge leaps in surcharges

UPS truck

(SALEM, Ore.) - It is a song by the Rolling Stones, but it could easily pass as a conversation between any e-commerce business and that nasty 10-letter word.

If you start me up,
If you start me up I’ll never stop.

Business owner:
I’ve been running hot,
You got me just about to blow my top.
I'll never stop, never stop, never stop, never stop.
Business owner:
You make a grown man cry.

When FedEx and UPS rolled out their 2018 surcharge rates, as part of the general rate increase announcements, business owners across America perhaps had a good cry, or at least shed a tear.

FedEx and UPS are doing everything in their collective powers to tilt the shipping game in their favor. It’s a necessary evil.

In the case of FedEx, in 2017 it assessed an additional handling surcharge for any package measuring more than 60 inches on its longest side.

This year they dropped that threshold to 48 inches and raised its surcharge fee 9.09% (to $12 per package).

Last year, the oversize charge was applied to packages with its longest dimension longer than 119 inches or length plus girth more than 165 inches. This year, that surcharge will be applied to packages 96 inches in length or 130 inches in length and girth, and that surcharge was raised 10.34% (to $80 per package).

Other noteworthy changes include a surcharge for FedEx Express and FedEx Ground shipments billed to a third party; FedEx Freight customers will face an over-length surcharge of $85 for shipments longer than 8 feet and less than 12.

In addition, SmartPost will now have dimensional weight pricing. With free shipping, it has invited consumers to buy tiny ear buds, razor blades, or a small jar of eye cream. Those items are wrapped in bubble wrap, then packed in a larger box and shipped.

"Some of these carriers are basically shipping around air," Christoph Stehmann, president of Ecommerce and Shipping Solutions, told CNBC.

"If the carrier only charged by weight, they would be losing money."

As for UPS, it will launch its key surcharge changes July 8 and it will be impossible not to notice. The additional handling surcharge for domestic packages exceeding 70 pounds will be $19, an increase of 75% over 2017.

And after raising its large package surcharge for domestic shipments last Dec. 24 from $10 to $80, that will now increase to $90 for any package delivered to a residential address starting July 8.

Why so many surcharges?

The soars in surcharges are the only way shipping companies can fight back against their own rising costs born out of customers’ continued demands. FedEx and UPS are seeing their costs rise due to several factors, but perhaps none greater than the amount of consumers seeking – make that demanding - fast, free delivery.

A 2016 AlixPartners LLP survey found the average customer was ordering just under 15 packages online, opposed to fewer than 10 in 2012. The same survey found only 60 percent of consumers are willing to more than five days for their package to arrive. That was down from 74 percent in 2012.

In another 2016 study, Pew Research showed eight in 10 Americans are now shopping online. That means 79 percent of U.S. consumers shop via the web or their smartphone, compared to just 22 percent in 2000.

For shipping companies, that means labor costs are soaring too. More trucks, truck drivers, warehouse staff, wages and health care costs are some of the increased expenses facing companies. Also, there are now higher costs tied to increased delivery demand. Companies have more trips to the same locations more often – an average of 1.5 more than they did four years ago.

What can you do to fight back?

So what can you do as a business to survive in this era of never-ending prices increases? In short, know your data. That is your best defense.

For example, let’s say you’re an electronics business whose most popular product is 60-inch flat screen televisions. This year, you will face an additional handling surcharge from FedEx for each TV you ship. If you know exactly how many TVs you are shipping, you can determine exactly what that will mean to your bottom line.

Once you have that information, you can approach FedEx and seek to renegotiate your contract for a more palatable surcharge. If the renegotiation does not meet your satisfaction, you can seek out UPS, the U.S. Postal Service or other shipping companies. Data gives you the knowledge to know exactly what costs you can incur and remain profitable.

But that’s just one area.

  • With the onset of dimensional weight and additional handling fees, now is a good time to determine if your packaging is the most cost-effective way to deliver your shipments.
  • Because surcharges are both voluminous and complicated, communicate with your carrier to help figure out what services and packaging options will best suit your business.

  • Know all your data. Because of the myriad of surcharges, what you ship, how much you ship and where you ship will all be key when it comes to negotiating the best rate possible.

  • With more surcharges and longer invoices - all complex in nature - the chances for errors increase. It would be wise to consider having an invoice auditing service, which could more than pay for itself.

  • Finally, armed with all your shipping data, it’s time for you to do a little shopping among carriers to discover which company, or companies, are best suited to serve your business. But it’s advisable to bring along a trusted partner. Because of the number and varied surcharges utilized, knowing industry and regional benchmarks will aid you in understanding what your competitors are paying and what you should expect from your shipping partner, making it easier to compare costs.

Shipping costs are not going down any time soon, nor are consumers’ demands for fast - and faster - free delivery.

  • Every year expect companies to add new and innovative surcharges, and expect to pay more for the surcharges they already employ.
  • With more Americans turning to online shopping every year, and with the amount of purchases increasing, expect your costs to rise to meet their demands.

  • To ensure your business can remain competitive and control costs, annually review your data, have a firm handle on your data, and always be on the lookout for which shipping company will give you the best value for your dollar. Always be willing to try and renegotiate contracts but, with the complexity and volume of surcharges, partnering with a trusted advisor may be the best way to make your way through this maze.

Rising costs are not unexpected. But how much they rise and how they are implemented are key to understanding what you need to do as a business to keep your costs in line.

Having a firm grasp of your data and finding a partner – think salary cap guru for professional sports teams – are the best things you can do to turn a potentially difficult situation into a manageable one, if not profitable.

Source: Special Features Dept.


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