Although package volumes have fallen from their 2021 highs, FedEx isn’t easing up on its peak season surcharges.
The parcel carrier, which says the fees are necessary to keep service levels high during its busiest period, took in more than $250 million in peak season surcharge revenue last December. Since then, it has pursued more profitability per shipment under new CEO Raj Subramaniam as demand has waned. A similar strategy is being executed at rival UPS, and both carriers have constrained volume growth that would have led to lower-yielding deliveries.
This approach has led to a pricey 2022 for parcel shippers. The Cowen/AFS Ground Parcel Freight Index, which tracks parcel transportation pricing versus a January 2018 baseline, reached a record high of 27.7% in Q2 as fuel surcharges more than doubled YoY. The index is projected to dip slightly to 25.7% in Q3.
“FedEx and UPS leveraged fuel surcharges as significant profit drivers, adjusting fuel surcharge tables twice since late 2021, with increases that continue to outpace corresponding indices from the U.S. Energy Information Administration on which they are based,” according to a Cowen/AFS news release.
The latter half of the year will be particularly expensive for large FedEx shippers that see volumes jump during the holidays. FedEx’s peak residential delivery charge applies to enterprise customers shipping more than 20,000 residential and FedEx Ground Economy packages weekly starting Oct. 10.
An eligible shipper’s peak residential delivery surcharge per package can range from $1.25 to $6 for FedEx Ground, and $2.25 to $7 for FedEx Express. The exact cost depends on how many more packages they are shipping compared to their weekly average volume for residential and FedEx Ground Economy shipments between June 6 and July 3. FedEx refers to this metric as a shipper’s “peaking factor.”
FedEx will calculate a shipper’s peaking factor each week from Oct. 10-16 to Dec. 19-25. The charge for a week’s peaking factor occurs three weeks later.
A shipper who ships 60% more the week of Oct. 24-30 than they did from June 6-July 3, for example, will see an additional $2 charge per FedEx Ground package they ship from Nov. 14-20.
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Supply chain innovators apply to patent what they see as important tools for the future. Sometimes they're brilliant. Sometimes they're funny.
The system is set to go live in Greater China this month, with a North America deployment planned for fiscal year 2024.
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