Dive Brief:
- FedEx announced new surcharges Wednesday. The surcharges on U.S. domestic SmartPost, Express and Ground packages will go into effect Monday until further notice.
- Residential Ground and Express surcharges — 30 cents per package — will apply to shippers with combined volume across the two services exceeding 40,000 parcels in a week or which ship 120% of the shipper's weekly volume average from a February baseline.
- Large or oversized parcels defined as those exceeding 96 inches in length or 130 inches in length and girth, will be subject to a $30 surcharge. Parcels that require additional handling will also be subject to new fees.
| Service level | Effective date | Surcharge |
|---|---|---|
| FedEx SmartPost | June 8 until further notice | $0.40 per package |
| Express and Ground residential | June 8 until further notice | $0.30 per package |
| Express and Ground oversize | June 8 until further notice | $30.00 per package |
Source: FedEx
Dive Insight:
FedEx's surcharges come roughly one week after UPS introduced similar fees, with some subtle differences. UPS' volume threshold for residential surcharges to kick in is 25,000 parcels, not 40,000. And its large parcel charge is slightly more at $31.45.
The move means the surcharges are unlikely to be a competitive factor, because both carriers have upped their costs to shippers. Many shippers will have to absorb or pass on the extra cost in an already fraught environment — especially those experiencing a marked uptick in volume, as many business-to-consumer (B2C) e-commerce shippers are.
"As the impact of COVID-19 continues to generate a surge in residential deliveries and oversized items, the peak surcharges will help us manage the demand while maintaining strong levels of service for our customers," a FedEx spokesperson told Supply Chain Dive via email. FedEx CEO Fred Smith said in March the carrier was "attacking costs" to protect the bottom line from increased operating expenses and uncertainty brought on by the pandemic.
In-sourcing SmartPost is one of the central cost-saving measures Smith named in March. In theory, SmartPost volume will add density to FedEx Ground. The SmartPost surcharge puts shippers relying on that service in a "precarious position," according to Nate Skiver, founder of consulting firm LPF Spend Management. Because SmartPost is FedEx's most economical service, a 40-cent surcharge represents a more substantial increase as a share of total parcel shipping spend.
"Do [shippers] pay the SmartPost surcharge in the short-term (negotiate a concession), in hopes that they can secure comparable Home Delivery pricing ... or do they pursue other carrier options to ensure service continuity and mitigate expense increases?" asked Skiver. The surcharge may cause some shippers to change service providers sooner that they might have without them.
"While this scenario does not describe every SmartPost shipper's dilemma, I am aware of several in this very position," Skiver said.
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