Rich Michals Jr.

Small Business: Surge in residential deliveries for carriers brings surcharges for shippers

Richard Michals News & Articles

By Jamie Herzlich
[email protected]
Updated July 5, 2020 6:00 AM

Rich Michals Jr.

Rich Michals Jr., president of Parcel Management Auditing and Consulting, says smaller shippers will have “to eat surcharges and extra costs or charge it to their customers and risk losing them.” Credit: Parcel Management Auditing and Consulting Inc.

The major shipping carriers have seen a surge in residential deliveries since COVID-19 hit and businesses were shut down.
With that spike has come added costs, say UPS and FedEx, which have translated into temporary coronavirus-related surcharges for shippers on certain type of packages.

That coupled with a suspension of delivery service guarantees has put pressure on local and regional businesses.
“Everything kind of runs downhill,” says Rich Michals Jr., president of Parcel Management Auditing and Consulting (PMAC) in Farmingdale, which helps negotiate terms with carriers. “Either these smaller shippers have to eat surcharges and extra costs or charge it to their customers and risk losing them.”

Some of the temporary surcharges have volume-based triggers that will impact larger shippers more, but that could trickle down to smaller shippers if they pass on the costs, he says.

Pandemic surcharges
Among COVID-related charges UPS added a $0.30 per package peak surcharge for certain UPS Ground Residential and SurePost services (SurePost uses the United States Postal Service for the final mile of delivery) and a $31.45 surcharge was added for large parcels, Michals says. These increases have certain size triggers.

FedEx’s added surcharges include $0.40 per package for all SmartPost shipments (FedEx’s competitor to SurePost) and $30/per package for all oversized shipments. But unlike UPS these surcharges are across the board without any size thresholds, says Trevor Outman, founder and co-CEO of Shipware, LLC, a San Diego-based transportation management firm.

FedEx spokeswoman Shannon Davis Ford says “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.”

UPS spokesman Matthew O’Connor says “peak surcharges reflect the current dynamic market conditions and uncertainties caused by the coronavirus pandemic, which is impacting available capacity and market demand. These surcharges are designed to balance out network to provide the best possible service for all customers…”

To be sure, volume flood has led to higher costs for equipment leasing, storage, overtime costs, airline costs, hiring, etc., Outman says. Also, higher operating costs from COVID-related expenses, such as Personal Protective Equipment and sanitization stations in all high traffic facilities, he notes.

Late deliveries
Beyond surcharges, also troubling are the carrier’s temporary suspension of service guarantees on delivery times, which impact a shippers’ ability to get refunded/credited for late deliveries, along with their relaxing of on-time service standards on certain products, says Outman.
Carriers were late 1% to 5% of the time in the pre-pandemic environment, sometimes 10% late when evaluating Express services. he says.
“During the pandemic we saw on-time performance drop to as low as 80%,” he says, attributing it to panic buying of consumables plus preferred shopping online equating to a glut of unexpected volume.

Consider generally Business-to-business volume is 3 times more profitable, so this influx of Business-to-consumer volume is cost and operationally intensive, their networks were bogged down, and delivery times slowed, says Outman.

Slower delivery time is troublesome to Jon Klein, president of Smithtown-based Kantian Skincare LLC, which sells the anti-acne product line Neutralyze on Amazon.

UPS delivers Kantian’s product from its manufacturer in Pennsylvania to the closest Amazon fulfillment center also in that state, says Klein, noting, “UPS is still a lot slower than normal. It’s making it difficult to stay in stock.”
That results in slower shipping time to customers, which has resulted in some lost sales, says Klein.
Still, UPS spokesman O’Connor said: “We are not slowing our services or reducing our commitment to reliability, but due to overall coronavirus uncertainties we have relaxed our commercial guarantees.”

Renegotiating contracts
It’s unclear when those guarantees will return, but at the very least shippers should see if there’s wiggle room with the surcharges.
“Shippers that are pushing back on rates are having some success with going back and renegotiating their contract,” says Michals.

For example, one of PMAC’s clients, Deer Park-based Industrial Chem Labs & Services, hasn’t felt the impact of the surcharges because of contract renegotiations with UPS that PMAC did on the company’s behalf, says Industrial’s sales manager John Reed.
Tony Nuzio, founder of ICC Logistics Services Inc., a Hicksville-based transportation and logistics consultancy, says it pays to routinely assess your shipping costs.

He says companies often don’t shop around and realize they’re paying more than they should. His firm provides data to help companies get an accurate picture of their shipping costs to help with renegotiations with carriers.

It’s wise to analyze what you’re currently paying and if the major carriers can’t make concessions you may reach out to other third-party regional carriers, says Nuzio.

FedEx and UPS parcel on-time performance

FedEx ground
2019 2020
March 98.1% 98.2%
April 98.5% 93.3%
May 94.6% 91.4%

UPS ground
2019 2020
March 98.4% 98.6%
April 98.3% 98.3%
May 98.5% 95.4%
Source: ShipMatrix database on millions of actual parcels shipped by customers of FedEx and UPS that use ShipMatrix technology to manage shipments.