UPS, FedEx Demand Surcharges to Kick in Next Week

UPS has announced it will extend demand surcharges applied to additional handling and large packages until further notice. The extension takes effect Jan. 14.

This extension is in line with last year’s extension of peak demand surcharges of $3.50 per package for additional handling and $40 per package for large packages. FedEx will also extend its demand surcharges. An additional handling surcharge of $2 per package and oversize surcharge of $20 per package will take effect Jan. 15.

This announcement comes despite lower volumes year-over-year (YoY), which UPS announced on its latest earnings call. The shipping company reported consolidated revenues of $21.1 billion in the third quarter of 2023, a 12.8% decrease from 2022. Consolidated operating profit was $1.3 billion, down 56.9% compared to the third quarter of 2022, and down 48.7% on an adjusted basis.

UPS’s volume and revenue took the biggest hit from labor negotiations in 2023, which caused customers to seek alternative carriers in fear of disruptions from potential strikes. It’s likely prices will remain high as UPS battles this loss of customer base, while maintaining profitability to offset the higher costs of the new Teamsters contract.

“Surcharges, especially like this one, are levers the carriers can pull at any time to ensure revenue remains high. They are not going to give back this revenue stream that they have had for well over a year now. Once they are used to the revenue, and once they have trained the shippers to accept it, they will not rescind it.”

These surcharges, which have been rebranded from “peak” to “demand” as carriers now charge them throughout the year, are a direct result of carriers looking to build new revenue streams.

“Surcharges, especially like this one, are levers the carriers can pull at any time to ensure revenue remains high,” said Paul Yaussy, senior consultant, professional services, at Shipware. “They are not going to give back this revenue stream that they have had for well over a year now. Once they are used to the revenue, and once they have trained the shippers to accept it, they will not rescind it.”

Yaussy continued that in many ways, carrier pricing is a psychological exercise aimed at small- to mid-sized shippers.

“The carriers constantly pull these levers they call surcharges and come up with reasons to justify them to their customer base,” he said. “It happens so often that shippers will often just give in and say, ‘Oh, that makes sense,’ and accept the fees.”

Constant pricing changes by carriers also add to the confusion for the average shipper who simply does not understand what they are paying.

“They often don’t know all the components of the pricing, and then fall into the trap of thinking their rates automatically go up 8%, 10% or more every year,” said Yaussy.

But, shippers don’t have to sit back and take it. With prices changing so frequently, Yaussy said carriers are practically inviting shippers to renegotiate agreements.

“The carriers lead shippers to believe they cannot do that, or there are penalties for doing it, but in reality, you can negotiate your agreement as often as necessary,” he said. “Shippers should not idly sit by and take these increases. The carriers rely on the fact that their pricing is hard to understand, and therefore hard to negotiate.”

In addition to renegotiating pricing agreements, shippers should also be looking at what is causing these surcharges to begin with and avoid them whenever possible.

“If you are shipping a package that is 49 inches long, is it possible to shave it down to 47 inches, or can you reduce your 52-pound box down to 50 pounds? Yaussy asked. “What changes can you make to fall within the guidelines?”