Why is shipping so expensive?

At the end of each year, FedEx and UPS both announce the general rate increases for the cost of packages being shipped. These increases include the base shipping rate and the majority of the additional value-added services. Small parcel shipping is expensive and small fees can quickly add up to become a huge drain on profits. Therefore, let’s take a look at why shipping is so expensive.

Carrier agreements are complicated

The details of FedEx and UPS agreements can often look like a foreign language even to the experienced of shippers. From value added services and money back guarantees to early termination fees and more, there is a lot to absorb when it comes to reviewing, understanding and ultimately feeling confident about the terms of a carrier agreement.
Carrier agreements are divided by express, ground and freight pricing. Each of these is further divided into base and earned discount categories. In addition, each service will have possible discounts for fuel surcharge and value added service fees.

Value Added Services

Value-added services or accessorial fees will account for a large percentage of a company’s shipping costs. FedEx and UPS do not make identification or quantification of these fees easy. This where data and reporting from a trusted 3rd party is invaluable. How many residential fees, delivery area surcharges, and address correction fees has been applied to your invoices in the past 6 months?

Fuel Surcharges

All companies are charged with a fuel surcharge. Yet few actually understand what these are or the impact fuel surcharges have on shipping expenses. Fuel surcharges are extra fees both carriers charges to cover the fluctuating cost of fuel. The calculation is a percentage of the base rate and added to the charges of each package. As a result, it covers additional fuel costs and keeps the carriers profitable, even when the price of fuel rises. Fuel surcharges apply to domestic and international transportation charges and to the many value added service charges.

Carriers have a minimum package charge

Very simply, a minimum package charge is when a customer agrees to pay the greater amount of the net charge based on discounts or a set minimum within the carrier agreement. FedEx and UPS set the minimum charge for all services in each agreement. Specifically, a Zone 2 – 1 pound package.

Why should a shipper care about a minimum package charge, they have great discounts? This minimum charge will negate a large percentage of the discounts for packages that are under 5 pounds and in lower zones. Take a UPS ground package, the minimum package charge is $7.85. If you have a 50% discount for this package, you will still pay $7.85 without any discount applied.

Quick tips to reduce your shipping expenses

Lowering shipping costs is not something that can be done in a few minutes. A shipper must first understand where they stand, what they are paying for, and what they are shipping. Data and analytics are key. Find a company like Refund Retriever to provide this data, the carriers do not provide the necessary data points.

Read your FedEx or UPS carrier agreements. This seems like a no-brainer, but most shippers have no idea what is on the agreement other than discount percentages. There could be terms with early termination clauses, service guarantee waivers, or unfair payment terms.

Know your shipping profile and obtain the best agreement possible

The carrier agreement is the most important part of your shipping, therefore you need to obtain the best possible pricing. A good carrier contract should have large base discount rates, a lowered minimum package charge, a service guarantee for on-time package delivery, and reduced rates for your top 5 accessorial fees.