UPS, FedEx Diverge on Last-Mile Surcharges

UPS van in snow hero

UPS announced its extension of shipping surcharges for 2021, with some similarities and some differences from what was put out last week by FedEx.

Most notable was a steeper price drop for the surcharge on UPS’s SurePost last-mile service, used by many smaller ecommerce shippers, as FedEx may be covering the cost of shifting volume from the U.S. Postal Service into its own ground network. UPS remains a heavy user of the USPS.

As of Jan. 17, UPS is dropping the surcharge on its SurePost and ground services from the current volume-based tier schedule of $1 to $3 – depending on now much it grew relative to pre-pandemic levels – to a flat 30 cents, the same as in May. But now it will be based on straight volume (any shipper with 25,000 more packages during any week since February 2020) vs. a tiered system. FedEx meanwhile decreased the SmartPost surcharge as of Jan. 18 from $1 to 75 cents.

Both FedEx and UPS are reducing the per-piece additional handling surcharge to $3. The surcharge on oversized packages is also similar: UPS is going from $50 to $31.45, while FedEx is lowering its rate from $52.50 to $30. In UPS’s case, both will be applied to any company that has shipped more than 1,000 total packages, or more than 10 packages large packages or those requiring additional handling, during any week following February 2020.

With FedEx and UPS both extending their surcharges for an indefinite period, expect to see more ecommerce shippers diversifying their mix by transferring volume to regional parcel carriers — who themselves have had to cap peak volumes — the USPS or courier and crowdsourced-based services as costs continue to rise.

FedEx said on its recent earnings call it expects heavier volume driven by the pandemic-fueled ecommerce surge to extend at least through the first half of 2021.

Parcel shipping consultant Jerry Hempstead said the “glaring difference” in both the UPS and FedEx announcements is the difference in last-mile surcharges.

“My take is FedEx is trying to divert the last mile away from the USPS to offer a more reliable and consistent delivery experience,” Hempstead said. “But it’s far more costly to use FedEx Ground contractors vs. the USPS letter carriers via Parcel Select.”

Parcel Select is USPS’s last-mile service used by UPS for SurePost deliveries, as well as by Amazon. That is rapidly changing though as the ecommerce giant continues to expand its own local delivery network via an army of Flex contractors operating out of its fulfillment locations. Amazon recently institute a rewards program to incent and attract Flex drivers.

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