The Big Five Surcharges

By: Hunter Hartman

Have you ever looked at your UPS or FedEx invoice and thought, “This can’t be correct, why are my shipping costs so high?” Based on the new dimensional rates that went into effect at the beginning of 2015 for UPS and FedEx, shippers should be looking at all options to assure their shipping practices are in line with “best practices.” You may want to recalculate your 2015 shipping cost budget if you have not considered what Move Method likes to call “The Big Five Surcharges:”

  • Dimensional Weight Pricing
  • Fuel Surcharge
  • Residential Delivery Surcharge
  • Delivery Area Surcharge
  • Delivery Area Surcharge Extended

Many of our customers are not familiar with how these different surcharges significantly affect shipping costs. At Move Method, we not only help identify these added costs, we offer best-in-class software and industry leading USPS Priority Mail rates to help mitigate these annoying surcharges.

Dimensional Weight Pricing:

The first of “The Big Five Surcharges” is the newly incorporated Dimensional Weight Pricing. I recently spoke with a company that ships a one-pound package of automotive parts. They spent $800,000 with UPS Ground in 2014 and ship their product in two different boxes, either 8x8x6 or 8x6x4. In 2014, this company was able to ship both of these boxes as Actual Weight one-pound package. Unfortunately, with the new Dimensional Weight Pricing, these packages are being charged as a two- or three-pound package.

To determine the Dim Weight, simply multiply the box dimensions and divide by the factor 166. For example, in a scenario where you are shipping a one-pound package in an 8x8x6 box, the Dim Weight is three-pounds! (8x8x6=384. 384/166=2.31. 2.31 rounds-up to 3). Similarly, an 8x6x4 package, which is relatively small, is now being dimmed at a two-pound rate. After speaking with me, this customer has moved all of one-pound packages to USPS Priority Mail and is no longer receiving any of ‘The Big Five Surcharges.”

Fuel Surcharge:

The second of “The Big Five Surcharges” is the Fuel Surcharge. All commercial carriers, with few exceptions, will charge a fuel surcharge on top of the negotiated transportation cost. The Fuel surcharge is based on a number of changing variables like the price of oil. The price of a barrel of oil in April of this year was $58, significantly lower than last year. Savvy carriers protect themselves by adjusting the indices to help offset highs and lows in the price of oil. This surcharge, which adjusts on a monthly basis, is passed onto customers as a percentage of the transportation cost. Although the price of oil may change dramatically, the Fuel Surcharge varies mildly month-over-month. The Fuel Surcharge is another effective increase to your transportation cost.

Residential Delivery Surcharge:

The third of the surcharges is the Residential Delivery Surcharge. The UPS website refers to a residential surcharge as the following, “A residential delivery is one made to a home, including a business operating out of a home, which does not have an entrance that is open to the public. For each residential delivery, an additional charge per shipment applies.” FedEx has a 2015 surcharge of $3.50 for a ground shipment and a $3.10 for a FedEx Home Delivery Shipment. These fees can be negotiated but even with a discount, they will dramatically affect the cost of shipping small parcels.

One solution we offer at Move Method is rating software that allows you to do a live automatic rate-shop between commercial carriers, the USPS, as well as other appropriate carriers. “The Big Five Surcharges” will be included in the rate-shop and the least expensive carrier automatically selected. Residential Delivery fees can drastically change the cost of each package going out the door. Consider the option of USPS Priority Mail, which offers one low transportation rate without additional surcharges.

Delivery Area Surcharge (DAS):

 The fourth of the surcharges is the Delivery Area Surcharge (DAS). And, just to be clear, this surcharge does not replace the Residential Delivery Surcharge discussed above; it is an additional surcharge common to commercial carriers. The DAS is defined as a “…package delivered to a residential rural area, residential super rural area, commercial rural area, or commercial super rural area.” There are 23,529 Domestic DAS and DAS Extended zip codes affected by this surcharge. That is a lot of zip codes! Depending on the product you are shipping, as many as 20% of your packages are being tagged with DAS or DAS Extended feeds.

These surcharges are listed on FedEx website in 2015 at $3.55 cents for ground and $3 for Home Delivery. So, let’s use the example of shipping a one-pound package in a 8x8x6 box from Southern California to South Carolina and it hits one of the 23,529 DAS zip codes. Not only will this package be tagged with a Residential Delivery Surcharge of $3.50, as well as a Dimensional Weight surcharge, it will be hit with a Delivery Area Surcharge as well. Based on retail rates this is what your package will look like:

  • California to South Carolina: Zone 8
  • Transportation Cost, one-pound shipment: $xx
  • Dimensional Weight (8x8x6), three-pound shipment: $9.84
  • Residential Surcharge (Home Delivery): $3.10
  • Delivery Area Surcharge: $3.55
  • Fuel Surcharge at 3.5%: $0.34
  • Grand Total: $16.38

*This same package can be shipped using USPS Priority Mail through Move Method for $6.25!

 Even with a healthy discount on these items, it will not get as low as $6.25. Priority Mail also has a 2-3 day delivery time which will provide a significant decrease in transit time compared to that of FedEx.

 Delivery Area Surcharge Extended (DAS-E):

 The fifth and final surcharge is the Delivery Area Surcharge Extended, which is an additional surcharge for ‘very rural’ areas according to UPS and FedEx. It is defined as an “extended distance” from a UPS or FedEx hub. The price on this for Ground is $3.80 and $3.80 for home delivery. This is IN ADDITION TO THE RESIDENTIAL AND DELIVERY AREA SURCHARGES. You could be receiving TWO delivery area surcharges on one package. I work with a shoe company that was shipping everything FedEx before implementing our rate-shopping software. This customer was encountering 5-10 DAS-E shipments a day and, as a result, losing money on these shipments because of the additional expense. Rather than making a margin, he was shipping the product at a LOSS! None of these fees apply to USPS and now this customer enjoys earning a profit on these shipments.

As you consider your budget for 2015, consider not only the shipping cost associated with the commercial carriers but the various surcharges that affect your packages as well. Incorporating a multiple-carrier strategy, utilizing the USPS, and rate-shopping software will create cost savings and shipping efficiency for your operation.

 

Hunter Hartman is an eCommerce consultant for Move Method and is based in Orange County, CA. His focus is on small-to-large eCommerce companies that are shipping business-to-consumer. Through his shipping expertise he has helped hundreds of companies save money shipping small parcels and helped to integrate a more automated solution. For more information and a free consultation, please visit us at www.MoveMethod.com.