[Updated post from October 7, 2021]
With the 2022 peak season right around the corner, retailers are currently gearing up for the busiest period of the year. One of your biggest considerations during the peak holiday season? Understanding how peak season surcharges are going to affect the cost of shipping.
E-commerce sales skyrocketed as a result of the COVID-19 pandemic. And while 2022 has seen more shoppers return to brick and mortar storefronts, consumers still plan on relying heavily on online shopping this holiday season. According to Ware2Go, 81% of consumers are planning to purchase at least some of their holiday gifts online in 2022.
This is both a blessing and a curse for retailers. While healthy online sales are reassuring during a time of high inflation, it also means that peak surcharges are more likely to hit your bottom line.
Our take on peak season surcharges and fees for 2022? More of the same – and even earlier than normal.
In this guide, we’re going to give the full rundown on 2022 peak season surcharges so you’re aware of the impact they may have on your profits this holiday season.
Peak Season Surcharges (PSS) refer to temporary surcharges that parcel carriers apply to their base shipping rates to cover increased operating costs during periods of high demand. Most surcharges take the form of flat fees applied per package. A peak surcharge may apply for a fixed period, or until further notice.
A peak season surcharge should not be confused with a General Rate Increase, which recognizes a longer-term growth in operational costs for a carrier.
Traditionally, GRIs are applied at the beginning of each year and stay in place until a review in freight charges the following year. Peak surcharges, meanwhile, relate to variable increases applied to specific service levels or scenarios for a defined period.
However, the COVID-19 pandemic has served to blur the lines between GRI and PSS. With parcel carriers and supply chains under sustained pressure due to the growing popularity of home delivery services, it’s become much less clear what qualifies as the ‘peak’ of the year – if it even exists at all.
The demand for shipping and freight isn’t uniform throughout the year. Instead, major retail events such as Black Friday and Cyber Monday create spikes in consumer spending. In turn, this creates a higher demand for shipping services.
Because it isn’t feasible to maintain higher labor levels year-round, shipping carriers take on additional resources in the form of seasonal labor or automation when they are working at or near full capacity. Peak season surcharges allow carriers and postal services to offset these increased costs and maintain the service standards consumers expect.
Peak season surcharges are most commonly applied when parcels require some form of additional handling by carriers, such as:
Carriers implement a peak additional handling surcharge during peak season to cover processes that cannot be automated by software or robots. For example, a large package whose dimensions don’t fit within the automated sortation process often receives an oversize charge due to the manual labor required.
Peak season surcharges are also designed to respond to broader marketplace shifts that are affecting parcel services.
For example, the COVID-19 pandemic resulted in a surge in e-commerce sales. Online retail grew by an eye-watering 44% in 2020 – triple the growth experienced in 2019. The result was a massive uptick in packages shipped for residential delivery.
This is a much more costly, inefficient delivery method for carriers compared with commercial shipments. As a result, many carriers have since introduced a peak residential delivery charge to cover higher delivery costs and continue making a profit on B2C deliveries.
Due to the widespread supply chain disruption caused by the COVID-19 pandemic, the question ‘what is peak season?’ no longer has an easy answer.
Traditionally, peak shipping season would begin in the Fall shortly after Back to School promotions, ramping up throughout October and November with Black Friday and Cyber Monday before ‘peaking’ during December. In recent years, Chinese New Year has also joined the peak season due to the growing reliance on Chinese ports.
But COVID-19 upended this dynamic. With consumers stuck at home due to stay-at-home restrictions, parcel carriers were forced to pivot from commercial accounts to domestic residential packages.
UPS and FedEx caused a stir when they decided to add surcharges to U.S. domestic packages in June 2020, thanks to experiencing peak holiday volumes during the middle of the year. At the time, FedEx referred to these changes as the ‘new normal’ to manage increased demand for e-commerce.
Although the acute stage of the pandemic is now behind us, the ripple effects are continuing in 2022. Rising inflation is resulting in consumers starting their holiday shopping earlier than ever due to fears about more price hikes to come.
What does this mean? Parcel carriers are now implementing surcharges much earlier than they did in the past – and leaving them in place for longer. As a result, peak season surcharges are once again going to be one of the biggest challenges for retailers in peak season 2022.
With the ongoing difficulties with ocean freight and supply disruption, industry insiders have been predicting some pretty hefty surcharges for shippers for the 2021 holiday season – and they’re right.
In a sense, 2021 peak surcharges are picking up right from where things left off in 2020. This is because the year so far has already seen carriers implement a variety of surcharges to manage demand – with some kicking in almost as soon as another comes to an end.
In line with the trend of shoppers starting the bulk of their holiday shopping earlier each year, carriers have begun shifting the start date of surcharges forward – sometimes by surprising amounts. The first round of surcharges for the 2022 peak came into effect on the 5th of September, while USPS surcharges are staying in place for almost a month longer than they did in 2021.
Thanks to a longer, more spread-out seasonal peak becoming the norm, parcel carriers have started breaking up their peak season into different date ranges with escalating fees applied. While this means that businesses will pay less for shipping than in previous years during some weeks of the holiday season, you’ll pay a premium during the so-called ‘peak of the peak’.
Once again, merchants with high parcel volumes are going to be hit the hardest by seasonal surcharges. The higher the peaking factor set by the carrier, the more shippers have to pay per package. Combined with other surcharges such as additional handling, this could easily erode the profit margins of a sale.
Due to the high delivery costs associated with the final mile, it’s not surprising that residential delivery is on the surcharge list for all major carriers. Although the reopening of physical storefronts will ease some pressure on their networks, e-commerce is going to be relied on heavily this holiday season.
It’s not just parcel carriers that are implementing peak season surcharges this year. Amazon has cited growing seasonal fulfillment costs, such as labor, fuel, and inflation as making additional fees necessary to maintain their service standards during peak season. This signals a long-term shift designed to minimize the huge losses incurred by their business model.
UPS has implemented an array of package surcharges since 2020, citing the ongoing COIVD-19 pandemic as causing operational strain. Many of their ‘peak’ season surcharges in 2022 are a continuation of additional fees that shippers have already been paying during 2022.
Oversize packages are a particular target for UPS during the 2022 peak season, with the carrier’s oversize charge one of the largest out of all major networks, with an additional charge applied to packages over the maximum limit:
Note that the additional handling surcharge and oversize charge apply to all service levels, while high-volume surcharges won’t affect domestic residential packages, excluding UPS SurePost, UPS Ground Residential, UPS Next Day Air Residential, or All Other UPS Air Residential:
You can find more information in UPS’ Peak Season Surcharges Guide.
Just like UPS, FedEx is targeting additional handling and high-volume shippers particularly hard, in addition to packages over maximum limits:
Moreover, FedEx has taken the step of applying multiple peak season periods for FedEx Express and FedEx Ground, as well as International Ground Service. The first round of peak season surcharges kicked in at the earliest date on record on September 5th 2022, while a second round of more expensive surcharges comes into affect on October 3rd. Their peak surcharge has three different pricing periods, with the highest surcharge beginning on November 28th at $2.50 per package, before dropping again to $1.50 per package.
The size of the Peak Residential Delivery Charge will depend on the peaking factor by which your residential shipping volume exceeds a weekly volume of 25,000 packages, as expressed on the peaking factor chart below. Not that FedEx is using the same factor as UPS, so switching carriers is unlikely to benefit high-volume shippers.
For more information on how the Peak Residential Delivery Charge is calculated, check FedEx’s website.
The United States Postal Service implemented peak season surcharges for the first time for the 2020 holiday season, so it’s not surprising that the carrier has chosen to do so again in 2022. According to a statement by the agency “This, combined with improved operating practices, will make the United States Postal Service your best option to ship your packages….and your only option to cost effectively mail your Christmas Cards.”
As a part of their ongoing Delivering for America restructure, USPS has expanded their surcharges outside of large commercial customers such as Amazon and Walmart. Small volume shippers and individual consumers shipping holiday gifts are also going to be caught up in efforts to shore up the network and prevent a repeat of the substantial delays experienced in 2020.
USPS peak season surcharges are targeting oversize U.S. domestic residential packages which take up valuable freight space. The longer the route and the heavier the package, the more surcharges will sting. These changes will affect Priority Mail, Priority Mail Express, Parcel Select Ground, and USPS Retail Ground. International services are unaffected.
The following peak season surcharges for USPS Priority Mail and First-Class Package Service are in effect from October 2nd, 2022 to January 22, 2023:
|Parcel Select DestinationDelivery Unit (DDU||Starts at $3.50||25 cents|
|Parcel Select DSCF||Starts at $3.77||75 cents|
|Parcel Select DNDC||Starts at $4.84||75 cents|
|USPS Connect Local||Starts at $3.95||No change|
|Parcel Select Lightweight (DDU)||Starts at $2.32||No change|
|Parcel Select Lightweight(DSCF and DNDC)||Starts at $2.72||No change|
|Parcel Return Service||Starts at $3.37||No change|
With peak season surcharges now practically a year-round feature for major parcel carriers, it’s never been more important for merchants to know how to manage them effectively. Although it’s hard to avoid seasonal surcharges completely, there are steps you can take to minimize their impact:
All parcel carriers will publish their surcharges to their websites, which allows you to compare extra fees between different providers in advance of the holiday season. But be aware that the cheapest ground economy package services or express package services aren’t necessarily the best options. The difficulties faced by Amazon’s same-day delivery partner LaserShip is a classic example of why the cheapest rate doesn’t necessarily mean reliable service. Keeping this in mind will help you to choose the best value carrier for your needs.
Express package services will typically bear a higher peak surcharge during the holiday season. So, while customer expectations for rapid (and free) delivery are getting higher with each passing year, remember that you may be forced to pass higher shipping costs onto your customers.
Ware2go’s study found that 56% of customers said that free shipping was the perk they wanted most when shopping online this holiday season. One of the easiest ways to minimize peak season surcharges? Opt for slower shipping speeds with a lower flat rate.
But while peak season surcharges for Ground services are less, they’re more likely to be vulnerable to transit delays or late deliveries. Express services are generally more reliable in terms of delivery timeframe, which is an important consideration when consumers are expecting deliveries ahead of Christmas Day.
It’s important to appreciate that carriers can introduce new surcharges at any time with little warning, and the uncertainty presented by COVID-19 and the War in Ukraine means that surcharges outlasting the holiday season are likely to become the new normal. It’s important to keep a close eye on carrier websites for any surcharge announcements or extensions to avoid getting a nasty surprise.
This year’s peak season surcharges are proving to be more complex than previous years, with complex calculations, differing volume thresholds, and plenty of fine print. It’s highly advantageous to partner with an experienced e-commerce fulfillment provider like Whiplash who can help you to build a flexible, cost-effective shipping strategy that skillfully navigates peak season charges.
Our SmartRate Selection tool helps businesses to understand and compare surcharges between major and regional carriers in real-time to find the optimal shipping method that works for your needs. Give yourself the ultimate control over your shipping strategy so you can capitalize on the revenue opportunities of the holiday season – without losing profitability. Contact Whiplash today to find out how we can help alleviate the impact of peak season surcharges.