FedEx Follows Suit with COVID-19-Related Peak Surcharges for Shippers

It took FedEx less than a week to react to UPS’s new COVID-19-related peak surcharges by rolling out its own new fee schedule to cover additional volume-related costs, with a couple wrinkles separating the two plans and no end date specified, again impacting large-volume shippers.

Effective June 8, FedEx will charge 40 cents more per package for items tendered through SmartPost, its last mile offering serviced by the U.S. Postal Service. FedEx is winding its relationship with the USPS down this year, transferring an estimated 2 million parcels into its own ground network.

FedEx is also adding a 30 cent per package residential delivery surcharge on all domestic ground and express deliveries for those shipping more than 40,000 packages per week via the two services, if their weekly average is more than 120% of what it was in February.

Lastly, FedEx is adding a $30 per package surcharge for oversized items exceeding 130 inches in length and girth delivered by both ground and express services.

There are some differences between FedEx’s new peak rates and those of UPS. For example, UPS set a surcharge of 30 cents per package for any shipper whose combined ground and SurePost weekly volume exceeds their weekly average from February by more than 25,000 packages. FedEx has the higher threshold of 40,000 ground and SmartPost packages, and adds the stipulation that weekly volume has to also be 120% higher than the February weekly average.

On oversized packages, UPS added a surcharge of $31.45 for shippers who send more than 500 of them in a week, with the same dimensional definition as FedEx. All of its new charges were as of May 31, with no definite ending date.

Tim Geiken, principal of parcel spend management consultancy Platinum Circle Partners, said more shippers will be impacted by FedEx’s change as all SmartPost packages are affected.

“SmartPost is a popular alternative to the USPS and UPS SurePost service, and is used widely in ecommerce,” Geiken said. “In all cases the charge is significant and can add between 5% and 10% to the cost of a low-weight delivery. The way UPS and FedEx use each other to leverage rate increases, we won’t be surprised to see UPS announce its SurePost surcharge is expanding to a wider customer base.”

“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 spokeswoman said, a similar line to UPS’s explanation for its new charges.

Parcel consultant Jerry Hempstead said the only question on the new FedEx charges is, are they enough? He explained that the company had taken on a lot in the past year, expanding to seven-day delivery, moving express packages to the ground network and diverting tons of volume from the USPS. Then the pandemic hit, bringing a massive surge in ecommerce volume.

“It’s very narrow in scope and only affects a handful of shippers,” Hempstead said of FedEx’s peak surcharges. “And the timing (of the above changes) was not so good as ecommerce exploded. With the increased volume came almost immediate cost levers on the business. We will not see how good or bad it is or was until FedEx announces earnings.”

The carrier’s fiscal year ended May 31, and results are expected later this month.

Gavin Creado, a national account manager at LJM Group, said it was interesting that FedEx didn’t put any volume threshold on SmartPost or oversized packages, whereas UPS SurePost deliveries have to hit the 25,000 package threshold and oversized has an initial threshold of 500 packages.

“So on the FedEx side, those that ship SmartPost and have oversize packages will start to see an immediate impact, as early as this week,” Creado said. “On a monthly basis, some of our clients will be impacted quite substantially, especially those shipping oversize.”