West Coast regional parcel delivery company OnTrac will impose peak-season holiday delivery surcharges for the first time in its 29-year history, a move that puts additional cost pressure on large parcel shippers already facing major surcharge hikes from FedEx Corp. (NYSE:FDX) and UPS Inc., (NYSE:UPS) as well as less expensive levies from the U.S. Postal Service (USPS).
A “large-package” surcharge of $37.50 took effect Sunday and will run through Oct. 31. Effective Nov. 1, the surcharge will increase to $50 per package, Phoenix-based OnTrac said. Also on that date, the carrier will levy a $5-per-package “additional handling” surcharge for parcels that require more extensive processing. It will also levy a $450 “unauthorized package” charge for very large and heavy items that would normally be better routed through a less-than-truckload network (LTL) rather than through a parcel carrier’s infrastructure. Parcel providers typically avoid accepting that freight because its size, weight or a combination of the two puts their networks and equipment under enormous stress. All four surcharges run until Jan. 16.
Effective Nov. 15, OnTrac will impose a series of per-item surcharges on shippers whose weekly peak volumes exceed the average weekly volumes that were shipped between April 26 and Aug. 1. A 50-cent-per-package surcharge will apply on peak volumes exceeding 100%. The surcharge increases to $1.50 per package for peak volumes that exceed 150%. A $3 charge will be levied for peak traffic exceeding 300%.
Also on Nov. 15, OnTrac will impose a $1-per-package charge on shipments on bulk volumes tendered deep into the U.S. Postal Service network for last-mile deliveries to residences. All surcharges that take effect in mid-November will expire on Jan. 16.
Like other regional parcel carriers, OnTrac is privately held and does not release revenue, income or traffic figures. Its eight-state regional network includes California and extends as far east as Colorado. It is considered by many who cover the regional parcel segment to be the most influential regional parcel carrier in the country. About 85% of its traffic are business-to-consumer (B2C) deliveries. For most of its history, OnTrac was primarily a business-to-business (B2B) delivery firm. It shifted its model to B2C a few years ago.
In an email, Mark Magill, OnTrac’s vice president of business development, said the carrier has incurred significant costs to handle volume surges arising from the growth in e-commerce orders triggered by lockdown and shelter-in-place orders to halt the spread of the coronavirus pandemic. In addition, OnTrac does business in some of the most expensive states in the country, especially California, Magill said. Competing for available labor in high-cost states like California, Oregon and Washington has become increasingly costly, Magill said.
Magill also said the company is seeing a spike in interest from large shippers who face significant peak surcharges from FedEx and UPS, their longtime carriers. Shippers have told OnTrac that they are staring down the barrel of 30% rate increases, and that the incumbent carriers have told them to either pay up or find other providers. While the carriers may welcome the additional business, there will also be additional costs in servicing it, he said.
Regional parcel carriers have been around for decades and are considered attractive alternatives for shippers looking for fast deliveries and solid service within a specific region of the U.S. Because their costs are lower than those of carriers with nationwide footprints, regional carriers typically have lower rates and fewer add-ons or accessorial charges than FedEx or UPS. The regionals’ niche expertise, however, is not a good fit for shippers looking to work with a nationwide network.
Magill noted that OnTrac’s weekly surcharges are, for the most part, lower than those levied by FedEx and UPS.