Market Overview

FedEx's Peak Surcharges Go In Different Direction Than UPS

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FedEx Corporation (NYSE: FDX) disclosed its upcoming peak shipping season surcharges on Tuesday, and tweaked its surcharge language in an effort to set it apart from its chief rival, United Parcel Service Inc. (NYSE: UPS).

The FedEx surcharges will apply to customers that shipped more than 35,000 packages via FedEx Express and FedEx Ground in any week covering two separate periods: Oct. 5-18 and Nov. 16-29. The first FedEx surcharge will apply between Nov. 2 and Dec. 13 for the volumes shipped during the October period. The second levy applies between Dec. 14 and Jan. 17 for volumes shipped during the mid-November cycle.

The amount of the surcharges will depend on how much a FedEx customer shipped between Feb. 3 and March 1, the last period of normal volumes before government lockdowns to stop the spread of the novel coronavirus closed off all buying channels except for e-commerce. Under the FedEx program, a $1 surcharge will apply to each ground parcel delivery if total volumes exceed 110% of weekly traffic tendered from Feb. 3 through March 1. The surcharges will rise in $1-per-parcel increments until topping out at $4 per parcel for volumes that exceed 500% of the February traffic.

For FedEx Express, the company's air and ground unit, the surcharges will start at $2 per parcel, and escalate by $1 per parcel up to the 500% threshold. 

The FedEx surcharges will apply to commercial and residential deliveries, whereas the UPS surcharge applies just to residential deliveries. For example, a FedEx shipper tendering 25,000 weekly packages during the week for commercial delivery and 10,000 packages for residential delivery will be slapped with a surcharge on the residential portion.

In another departure from UPS' surcharge policies, every parcel handled under FedEx's SmartPost service, where FedEx inducts bulk volume parcels deep into the U.S. Postal Service's (USPS) network for residential deliveries, will be assessed a surcharge. By contrast, UPS' peak levies will apply to 25,000 parcels moving weekly on a combined basis by air, ground and its SurePost service, which is UPS' version of its partnership with USPS. 

The amount of the SmartPost surcharge will depend on the peak period when a SmartPost shipment is tendered.  For example, a parcel tendered between Nov. 2 — the start of the FedEx peak — and Nov. 29 will be assessed a $1 surcharge. The surcharge will increase to $2 between Nov. 30 and Dec. 6 before reverting to $2 between Dec. 7 and Jan. 17, the end date for the peak cycle.

John Haber, CEO of Spend Management Experts, a consultancy, said UPS is likely to establish a separate surcharge on SurePost deliveries after USPS on Friday announced its peak-season levies on large-volume users like UPS.

Haber said the SmartPost policies are designed to wean FedEx shippers off the service and compel them instead to use the company's Home Delivery product, where costs are higher but so are potential margins. FedEx is migrating all of its SmartPost traffic in-house with the exception of sparsely populated destinations, where it will continue to use USPS.

Peak season surcharges for 2020 have become very complex and expensive as the parcel supply chain braces for the typical holiday delivery deluge while coping with unprecedented volume spikes due to the impact of the virus. E-commerce volumes are expected to remain quite elevated into the peak as more consumers decide to order online rather than visit a store during the holidays.

As with UPS, FedEx will impose stiff surcharges on shipments whose atypical size and dimensions make it difficult and expensive to handle. FedEx will impose a $52.50-per-package surcharge on oversized packages, a $4.90 fee for shipments that require "additional handling," and a $350-per-package fee for "unauthorized" ground deliveries. The latter is a rarely seen fee for shipments that should be moved through the company's less-than-truckload (LTL) network, but need to be handled — at significant time and expense — by the package operation. 

Another difference between the two this year is that some of the extraordinary UPS charges don't kick in unless certain volume thresholds are met. By contrast, the FedEx surcharges are levied on every shipment.

 

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