The outbreak of the worldwide COVID-19 pandemic crippled all kinds of movement for several months, and the situation forced the major carriers such as FedEx and UPS to ramp up their shipping operations.
Global shipping giants like FedEx and UPS could not carry on with their vast package delivery networks. Besides, the outbreak also affected consumer demand and slowed down the eCommerce business.
The pandemic scenario prompted the shipping carriers to prioritize their delivery activities. For example, in recent months, FedEx announced that its current domestic residential volume is 72 percent of total packages, compared to 56 percent during the same time last year. With restrictions on movement and lack of resource mobilization, it was a daunting task for carriers to provide high-quality services without increasing shipping costs.
Impact on FedEx/UPS
To deal with the impact of the COVID-19, FedEx and UPS suspended their money-back service guarantees in March. Suspending the money-back guarantee meant that shippers could no longer claim a refund for packages that did not arrive within the specified delivery window. Although many people believe it to be a temporary suspension, there is no sign of it coming back.
The suspension of the money-back was the result of severe challenges both FedEx and UPS faced while operating their networks. For example, both the carriers put an end to delivery re-attempts when the global economy came to a halt. During that time, FedEx had nearly 2 million packages waiting in unutilized trailers for two weeks. This completely delayed FedEx’s organic growth, as there was hardly any capacity to generate new business.
In June 2020, both FedEx and UPS began to implement Peak Season Surcharges (PSS). Generally, rolling out a PSS is a strategy that carriers use during the peak holiday season when shipping volumes soar. The higher surcharges help in easing the increasing costs of large volume spikes, and that is why the timing of PSS in June was unusual.
Increase in Shipping Charges by FedEx/UPS
Imposing additional surcharges due to COVID-19 has confused consumers and got a lot of attention.
FedEx Peak Surcharge
- Packages originating in China is $.45/lbs in the APAC region and $.90 for other countries. For Hong Kong, it is $.45/lbs within the APAC and other destinations.
- All international packages are getting a minimum of $.10/lbs surcharge. The list by country/origin and destination is on the FedEx website.
- FedEx is also charging a package a minimum of $1 per shipment and $50 for freight.
UPS Peak Surcharge
- Enforced peak surcharges from China and Hong Kong. It all began at $.34, then increased to $.45/lbs, currently $.79 – HK=$.57/lbs.
- Other international shipments from all other countries are $.11/lbs and $.34 for freight.
- Effective from May 31, 2020, ground residential and SurePos =$.30.
- Large parcel surcharge=$31.45, additional if 500 or more weekly instances. Applicable for all shipments.
FedEx and UPS Domestic Shipping Charges Differences
- Effective from June 6, 2020, FedEx has enforced a “Temporary Surcharge” of $.40 per parcel for all SmartPost shipments.
- There will be $30 per package for all shipments as the Oversize fee (if exceeds the length of 96 inches, or 130 inches length and girth). In the case of UPS, 500 or more weekly shipments will trigger the fee, whereas FedEx will enforce this fee to all oversize parcels.
- There is a “Peak Residential” fee of $.30 per parcel for both ground and express packages if the ground and express residential weekly parcel delivery volumes exceed 40,000 packages. It is 120 percent or more compared to the average weekly volume in February 2020
How higher shipping cost has affected eCommerce shipping budget
The effects of customer acquisition costs, customer retention costs, and additional surcharges due to COVID-19 have increased the overall shipping budget, which eventually comes down to eCommerce consumers.
Cost of customer acquisition soars
Studies show that shipping fees significantly influence order incidence rates and additional shipping cost significantly. The analysis also indicates that customer acquisition is affected due to order size, whereas base shipping fee levels influence retention. Besides, a profitability analysis shows that providing incentives for larger package sizes may outperform free shipping.
Inventory management becomes pricier
Higher parcel volumes for FedEx and UPS have led to higher costs for storage, equipment leasing, overtime costs, hiring, airline costs, etc. Besides, higher operating costs due to COVID-19 also add up to the shipping costs. Some of these expenses are sanitization stations, testing, consulting fees, etc.
Higher incidence of delivery delays
With escalating B2C deliveries, FedEx and UPS are struggling to meet delivery commitment. It is crucial to remember that B2C deliveries have much lower profit margins than B2B due to higher miles, more stoppages, and less delivery density. Both FedEx and UPS have justified the increasing rates to offset the steep operating costs to maintain their service .
How can eCommerce and shipping carriers overcome these challenges?
eCommerce businesses and shipping carriers like FedEx and UPS are undergoing major changes when it comes to dealing with the types of parcel deliveries that are moving through their networks. These changes have occurred because of the recent shift in consumer demand toward eCommerce.
Currently, carriers are working with lighter-weight packages requiring frequent stops and higher mileage regarding reduced delivery revenues. This is an effort to keep up with the major shift by mitigating additional operating costs and enforcing PSS.
Due to the current scenario, shippers are now picking slower, more cost-effective options instead of more expensive premium alternatives after COVID-19. The express services that once accounted for 17 percent of parcels now equate to as low as 11 percent. Many believe that suspending money-back service guarantees may have triggered the decline.
Before enforcing any new surcharges, eCommerce business and shipping carriers should think about how these changes would affect their service performance and costs. Although it may take a little extra work on your part, it is essential to pay attention to shipping carrier behavior as a way to protect your eCommerce business’ margins.