As the holiday shopping season begins earlier and lasts longer, shipping costs are rising sharply, creating additional challenges for retailers and consumers alike as FedEx and UPS extend their surcharge windows this year.
Retailers and businesses are struggling with rising costs, as shipping fees have already surged significantly in recent years. FedEx and UPS have implemented nearly 33% price hikes since 2021, driven by rate increases, fuel surcharges and additional fees like premiums for rural addresses and oddly shaped packages, Bloomberg reported Monday (Nov. 2). These surcharges, typically associated with peak seasons, have now stretched to cover about 111 days, reflecting the earlier start of the holiday shopping season.
Impact on Retailers and Consumers
While these increases have been felt for years, this season’s extended surcharge periods are adding strain to businesses and consumers alike.
Retailers, already dealing with inflation, face elevated shipping costs that impact their bottom lines. For some, extra charges now comprise as much as 50% of total shipping costs, per the Bloomberg report. The extended holiday shopping season, driven by earlier sales events, has led to higher fees starting as early as Halloween.
As major carriers like FedEx and UPS focus on maintaining profit margins amid lower shipping volumes, these rising shipping fees are expected to remain a significant burden for retailers and consumers throughout the season.
FedEx and UPS Gear Up for On-Time Deliveries Amid Challenges
Meanwhile, FedEx and UPS are poised to achieve near 100% on-time delivery performance this holiday season.
In an interview with PYMNTS, Lisa Anderson, president of LMA Consulting Group, discussed how surcharges, which are common during peak seasons or for special circumstances like oversized items, have become particularly significant this year.
“Surcharges occur every year during peak season and for special circumstances such as oversized items,” she said. “However, because inflation has been robust and carriers are focused on increasing their revenue per package post-pandemic, surcharges stand out as especially noteworthy this year. Retailers are suffering as more customers request shipments with free freight and easy returns during peak season with high surcharges, and consumers are strapped and unwilling to pay extra for delivery.”
Retailers Plan for Surcharges as Shipping Costs Rise
Anderson noted that most surcharges are ultimately passed on to customers, though the extent varies depending on the carrier, retailer and product.
“Retailers forecast for these surcharges and plan the impact on their pricing, promotions and discounts,” she said. “They are likely to absorb more of the surcharges for their premium customers. With that said, inflation has caused havoc with shipping charges and surcharges in the last few years, which has put retailers, carriers and consumers on edge.”
Surcharges typically occur during peak seasons, between Thanksgiving, Black Friday, Cyber Monday, Christmas and New Year’s Day, Anderson noted. Looking ahead to the busiest time of the year, both UPS and FedEx are well-prepared for peak season demand, having spent several months optimizing their operations.
“They are well equipped with hiring, automation, increased visibility and other tools that will provide a solid customer experience, and they have been encouraging customers to extend the season to smooth out demand,” she said. “By smoothing out demand, they can provide better service for lower cost.”
On the other hand, Anderson said package shippers are also increasing surcharges to cover the costs to ensure a seamless delivery experience for the anticipated demand and expected operational challenges.
“There is no doubt that disruptions have been at a heightened level in the global supply chain, and so they have planned for what’s expected to make sure their customers are served,” she said. “Retailers and consumers are frustrated with across-the-board inflation, yet demand is expected to remain robust. eCommerce is more prepared from the systems perspective as companies have invested in automation and advanced functionality and integrations.”
Looking ahead, while 2024 saw a high demand surcharge added on top of the typical peak season surcharges, carriers have indicated that they do not plan to extend the high demand surcharge into 2025 after the peak season ends, Anderson said. “However, industry experts expect it to be absorbed somewhere, and so prices will remain unchanged overall.”
Originally published in PYMNTS, December 3, 2024