I’m Jay Kent, managing director of SLB Performance, a consulting firm that helps companies reduce supply chain costs, implement BI tools, and improve in-stock and customer service. After 25 years of leading some of the most complex supply chains in the industry, I began advising companies in multiple industries and verticals. To mitigate costs and improve efficiencies, it’s important to understand the market. So, twice a month, I’ll share parcel news and thoughts. Be sure to hit the subscribe button to receive the latest newsletter in your LinkedIn notifications.
We’re now in the midst of the holiday peak season, with carriers such as FedEx, UPS, and regional carriers implementing seasonal ‘demand’ surcharges. But are they really needed this year? Well, yes, to cover increasing costs for the carriers but not necessarily for actual demand.
In a recent DC Velocity article, Satish Jindel, principal at ShipMatrix, a consulting and analytics company that specializes in parcel shipping, estimated that the market currently has capacity for 110 million parcels per day, but it’s seeing demand for only 68 million. Demand is not growing, and capacity is.
Indeed, UPS reported Q3 earnings last week and recorded declines in revenue, profit, and average daily volumes (ADV) across all of its groups.
- ADV for Ground was down 10.7% YoY, but the company noted that the declines leveled off and, by the end of September, were down 7.4%.
- UPS also noted that it won back 600,000 ADV Ground, with 50% of the 600,000 coming from UPS’s “largest competitor” (FedEx).
The day before UPS announced earnings, it announced the acquisition of Happy Returns, a software and reverse logistics company that enables frictionless, no-box, no-label returns for merchants and consumers, according to the press release.
The acquisition will help UPS optimize pickups and deliveries of returns, treating them as less costly B2B movements versus the more expensive B2C movements. UPS CEO Carol Tome noted on the earnings call that the company has seen the number of return packages increase by over 20% since 2020.
Preparing for 2024
We’ll be highlighting a few surcharges (Ground) over the next month or so to help shippers understand such costs and prepare for 2024.
First up is Additional Handling. This complicated surcharge originally started out as a single surcharge but has now evolved to today’s version, which is a surcharge based on a package’s dimension, weight, packaging, and zone. So, if your package does not conform to one of these three requirements and based on the zone you are shipping to, you will be assessed an Additional Handling surcharge.
For FedEx, per its website, for example, a surcharge will be assessed based on the following requirements:
- Dimensions – measures greater than 48 inches along its longest side, measures greater than 30 inches along its second-longest side, and measures greater than 105 inches in length and girth — the length and girth is length plus (two times the height) plus (two times the width).
- Weight – For US Ground Services: An actual weight greater than 50 lbs.
- Packaging – Is in non-standard packaging, including any package that is not fully encased in an outer shipping container; is encased in an outer shipping container not made of corrugated fiberboard (cardboard) materials, including but not limited to metal, wood, canvas, leather, hard plastic, soft plastic (e.g., plastic bags), or expanded polystyrene foam (e.g., Styrofoam); is encased in an outer shipping container covered in shrink wrap or stretch wrap; is encased in a soft-sided pack (e.g., courier packs, poly bags, and bubble mailers) that exceeds 18 inches along its longest side or 13 inches along its second-longest side or 5 inches in height; is round or cylindrical, including (without limitation) mailing tubes, cans, buckets, barrels, tires, drums, or pails; is bound with metal, plastic, or cloth banding or has wheels, casters, handles, or straps (e.g., a bicycle) (including packages where the outer surface area is loosely wrapped or where the contents protrude outside the surface area); or could become entangled in or cause damage to other packages or the FedEx sortation system.
UPS is similar, but be sure to check its website for any differences (or call me 😉).
And keep in mind, this is just for Ground. There is also additional handling for international and freight.
According to TransImpact, FedEx’s average 2024 increase for Additional Handling is 19.6% and 19.5% for UPS (Paul Yaussy) – both higher than the GRI FDX and UPS announced for 2024 (5.9%).
SLB Performance calculations
That’s it for now. Comments are always welcome. Reach out if you’d like to learn how to lower or even possibly eliminate the Additional Handling surcharge or any other parcel fee. Stay tuned for the next newsletter on Nov 15, and don’t forget to hit the subscribe button to ensure you receive it in your LinkedIn notices.- Jay