FedEx Corp. (NYSE:FDX) announced on Wednesday pricing changes on three of its delivery surcharges, effective Jan. 18. For shippers, the outcome is not that bad.
The Memphis, Tennessee-based delivery giant said it will reduce its surcharges on oversize shipments, shipments requiring additional handling, and parcels tendered under its SmartPost service, which traditionally called for FedEx to induct large volumes deep into the U.S. Postal Service network for last-mile delivery. FedEx has taken most of that business in-house in an effort to build package density on its routes and gain better control over the shipments.
US residential delivery surcharges, which were imposed Nov. 2 and were set at between $1 to $5 per package depending on customers’ volumes, will end on Jan. 17, FedEx said. FedEx will reduce its per-package surcharge on so-called oversize shipments to $30 from the current level of $52.50. It will cut “additional-handling” surcharges to $3 from the current $4.90-per-package rate. In addition, the SmartPost surcharge will be reduced to 75 cents per piece from the current $1 level. The higher surcharges have been in effect throughout the holiday shipping season and are set to expire on Jan. 17.
The new oversize-shipment surcharge will return the levy to where it was over the summer. The SmartPost surcharge will be 35 cents per piece higher than the prevailing summer rate of 40 cents. The additional-handling surcharge did not exist over the summer.
The revised surcharges apply to U.S. air and ground deliveries, and to international ground services, FedEx said.
The new levels may indicate a leveling off of parcel delivery demand following an unprecedented peak season, where pandemic-related concerns about in-store holiday shopping layered on top of the traditional buying cycle sent e-commerce volumes, and delivery demand, skyrocketing. It may also reflect an understanding that the vaccines coming to market to combat the coronavirus outbreak will return the country to some form of normalcy and shift retail activity away from e-commerce and back to stores.
Still, 2021 parcel volumes are expected to remain historically, and significantly, elevated. It may take at least half the year, if not longer, for America to achieve herd immunity. What’s more, many traditional in-store buyers forced into shopping online during the pandemic found the process to be unthreatening, easy and convenient. As a result, many consumers may not return to the stores, or may resume in-person buying but at less frequent intervals than before the pandemic.
The new 2021 fees will be in effect until further notice, FedEx said in its web post. FedEx also said it has changed the descriptive wording of its surcharges from “temporary” to “peak,” a sign that the add-on fees may be around for a while, and that the “peak” which once defined the pre-holiday shipping cycle has morphed into a full-year phenomena, the result of the huge shift to e-commerce triggered by the pandemic.
The FedEx charges are just the start of what may be an unprecedented year for accessorial fees, charges that carriers add to their base delivery rates. Surcharge creep has been a fact of life in parcel delivery for years. However, the volume demand from 2020 that is expected to carry over into 2021 may kick some of those increases into high gear.
In a recent webinar, parcel consultancy AFMS LLC displayed a slide of 20 surcharges, with 10 each from FedEx and archrival UPS Inc. (NYSE:UPS). Of the 20, only one surcharge was priced for less than a 5% increase in 2021. So-called extended delivery area surcharges, which ostensibly compensate carriers for the cost of making longer deliveries, showed 2021 increases of 9.25% or higher, according to the AFMS data.
Carriers have said that the surcharges are needed to offset the costs and complexities of meeting parcel shippers’ ever-expanding service needs. Few will argue that some surcharges are justified, and that there is little doubt that the delivery surge starting in the second half of March has stretched carrier capabilities to extraordinary limits. However, parcel consultants who are tasked with helping shipper clients bargain down the surcharges contend the fees are designed more to generate profitable revenue for the carriers than to compensate them for additional services rendered.
In its webinar, AFMS cited an example in which the multiple surcharges levied on a 1-pound parcel moving 300 to 400 miles ended up being higher than the base rate itself.