Shipping Surcharges Explained: Fuel, Residential, Peak
As an e-commerce merchant, your goal is to keep shipping costs down in order to maximize your profit margins. So if you’ve ever encountered surcharges when shipping, you may find yourself feeling confused — and frankly, even a little annoyed — about them. How can you know when you’ll encounter surcharges when shipping e-commerce products? And what steps can you take to keep these additional costs in check?
Simply put, a shipping surcharge is an additional fee tacked on to the cost of transporting a product. Here, we’ll look at three of the most common types of surcharges so that you can walk away knowing why they’re in place, which carriers implement them, what kinds of costs you can expect, and how they’ll impact your e-commerce business.
Let’s jump right in.
As you’re probably aware, the price of fuel can be quite volatile. This graph from Statista shows just how much the retail price of a gallon of regular gasoline has changed from 2009 to 2020.
A fuel surcharge is an extra fee charged by carriers to cover the cost of these fluctuations. This ensures that the carrier remains profitable, regardless of what the cost of fuel happens to be at any given moment. Typically, fuel surcharges are calculated as a percentage of the base rate and are added to the overall shipping cost.
Carriers That Implement a Fuel Surcharge
Many of the major carriers have some type of fuel surcharge in place, including FedEx and UPS. The USPS, however, does not currently impose extra fees to account for fuel price increases. Also, Shippo users who opened their UPS account through Shippo will also not avoid fuel surcharges completely.
Fuel surcharge pricing varies carrier to carrier, as well as by the type of shipping service being used. As an example, as of November 2021, UPS fuel surcharge pricing was:
- 10.00% for Ground shipping
- 10.75% for Domestic Air shipping
- 12.75% for International Air Export shipping
- 16.50% for International Air Import shipping
How Fuel Surcharges Affect e-Commerce Merchants
When fuel surcharges are applied, you’re effectively stuck with an additional expense above and beyond the base cost of shipping your product. And, as you can see from the rates listed above, these surcharges can be significant — especially when you’re sending items internationally.
By checking a carrier’s fuel surcharge rates before shipping out orders, you can choose to work with one that offers the lowest possible fuel surcharge rate — or none at all. Fuel surcharges can also inform shipping decisions you make. For example, if you have any flexibility with your delivery timelines, choosing ground instead of air shipping may help you save on both shipping fees and potential fuel surcharges.
As their name implies, residential surcharges are additional fees for making deliveries to residential dwellings. What exactly constitutes a residential delivery can vary from carrier to carrier, but many — like UPS — classify residences as either homes or businesses operating out of a home.
The reason for residential surcharges is the inconvenience it creates to deliver a single shipment to a home location, as opposed to making multiple shipments to a commercial address.
Carriers That Implement a Residential Surcharge
FedEx and UPS are two of the biggest carriers that have a residential surcharge in place. USPS, however, does not because a huge part of the carrier’s business model revolves around delivering to all US addresses — commercial and residential. This is also another surcharge that is avoided for Shippo users who opened their UPS account through Shippo.
As of mid-2021, FedEx’s residential surcharge rates are as follows:
- $4.00 for FedEx Home Delivery, which is included in the base rate
- $4.65 for FedEx Express Package
- $4.65 for FedEx Ground
And for UPS, residential surcharges fees are:
- $4.45 for UPS Ground
- $5.00 for UPS Air
How Residential Surcharges Affect e-Commerce Merchants
There’s no getting around the fact that sellers shipping products to residential addresses will incur an extra fee when sending via FedEx or UPS. If you aren’t able to adjust your product pricing to absorb these extra costs, see if shipping via USPS when sending to residential addresses makes financial sense.
The last of these three common e-commerce shipping surcharges is the peak surcharge — an additional fee on top of a carrier’s base rate that’s applied during times of high demand. Black Friday and Cyber Monday in particular create a surge in demand, which many carriers respond to by implementing or increasing peak surcharge fees.
Each carrier sets the specific dates during which they’ll assess a peak surcharge. Early October to mid-January is an especially common period of peak surcharge fees, as they help carriers offset the extra costs they incur during the busy holiday shopping season.
Carriers That Implement a Peak Surcharge
Most major carriers enact a peak surcharge during the holiday season, including UPS and FedEx. Even USPS recently added this fee type to account for the high volume of online orders and deliveries expected during the 2021 holiday season. However, a UPS peak surcharge is not applied for those who opened their UPS account through Shippo.
Again, pricing for peak surcharges varies from carrier to carrier, along with other factors like package weight and distance traveled. For the 2021-2022 holiday season, e-commerce merchants can expect prices to increase by:
- $0.25-$5.00 per package for USPS during the peak season
- $1.15-$6.15 per package for select UPS services
- $1.50-$3.00 per package from select FedEx services, based on specific time periods within the peak holiday season
How Peak Surcharges Affect e-Commerce Merchants
If you, like most e-commerce retailers, send a high volume of shipments during the holidays, peak surcharges can create a considerable added cost.
To keep profit margins in check, be especially careful when choosing carriers and services. Given the variability in peak surcharge rates, you may see significant savings by choosing one option over another, depending on the specifics of your packages and destination addresses.
How Shippo Users are Affected By Surcharges
Like other e-commerce merchants, Shippo users are likely to be impacted by the types of surcharges mentioned above. However, there is some good news: Shippo users who created a UPS account after signing up with Shippo don’t have to worry about peak surcharges in 2021 for select services.
In addition, using a service like Shippo can result in savings of up to 89% off retail pricing on certain shipping labels — which goes a long way towards offsetting the impact of surcharge fees. For more information on understanding postal surcharges and how to reduce them, check out this guide.
While surcharges for shipping are by no means ideal for e-commerce sellers, they are an understandable part of the business model for many carriers. Familiarizing yourself with common additional fees like fuel, residential, and peak surcharges — as well as the rationale behind them — is an important first step to managing costs.
By empowering yourself with the most current information, you can identify which specific surcharges a carrier has in place before deciding to ship with them. Beyond that, using a multi-carrier shipping software like Shippo can help you unlock massive discounts to lower your overall shipping costs and help you maintain profitability.
Sign up to Shippo for free today to start comparing discounted shipping labels from the nation’s top carriers.
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