Is the Recent UPS Peak Season Surcharge Announcement Giving You the Christmas in July Blues?

By Jim Haller | Senior Manager, Parcel Spend Optimization | and | Kyle Ous | Business Development Manager, Packaging Optimization | and | Rich Lindgren...

By Jim Haller | Senior Manager, Parcel Spend Optimization | and | Kyle Ous | Business Development Manager, Packaging Optimization | and | Rich Lindgren | Senior Packaging Engineer | Chainalytics

Over the last few quarters, the big two have been hinting at a new surcharge for peak season small parcel shipments. Well guess what…UPS just came out with an announcement on June 19, 2017; “One or more Peak Surcharges will apply to packages shipped during a Peak Period, based on service level and package characteristics. Peak Surcharges apply in addition to all other applicable charges.” Not to be outdone, FedEx also hinted during their Q4 2017 Earnings Call that they are carefully evaluating the same – so don’t hold your breath too long, they will most likely follow suit.

So what does this mean? Once again, you, the shipper, will be paying more for your United States Domestic Residential Packages, Large Packages and Over Maximum Limits Packages.

The question is: how do you mitigate this new surcharge given the charges take effect for certain service levels as early as November 19, 2017? That is only four months away!

The rapid growth in e-commerce sales not only impacts parcel companies’ strategies but also their operations.

We know that the carriers’ profitability has declined during peak season the past few years, and they are trying to ensure that shareholder value is maintained to meet market forecasts and, more importantly, expectations. Just like Amazon has created a new customer expectation, the big two have done the same when it comes to the shareholders.

Over the last few months we have been talking about the new omni-channel marketplace that Amazon has created and how technology remains a key driver to meet customer expectations. Now let’s apply this concept on how to offset some of the increased costs regarding the recent Peak Season Surcharge announcement.

While Peak Season Surcharges are now a reality, there are changes that can be made to ensure savings occur in other ways during the pick, pack and ship process. Imagine an B2C order that is a residential,  multi-piece order. You need to ensure the right packaging is selected during the process to minimize the dimensional billing that will most likely occur in  today’s marketplace. For example, packaging optimization can be enhanced through technology designed to help shippers make decisions concerning box size between the lower cost carrier.

For starters, understanding dimensional weight calculation is paramount in setting your box portfolio. The graphic provides the formula parcel companies utilize when charging based on dimensional weight.

One tool that helps define your box portfolio and selection during the fulfillment process is a optimization software known as Pierbridge. This particular program allows you to alleviate some overages associated with avoidable dim weight charges with its carton selection feature.

However, on the box assignment side of the equation, selecting the right box size from your portfolio of box sizes oftentimes comes with experience. You can use cubing logic largely based on the LxWxH of your products combined in  your order to figure out required box size, but the tricky part is the practical application compared against the theoretical one.

Beyond relying on packaging technology, you must adopt a strategy to minimize void space in the box (i.e. multi-score box with varying footprint). This strategy also results in lower dim weight. The size of box allows for flexibility on the pick-pack line given infinite order combinations but requires additional steps and labor for the packers on the line and can also compromise the box’s compression and resistance to crushing in the supply chain.

Calculating this cube, selecting the right box size, and having  the line worker play “tetris” with the products to match the theoretical cubing logic can be difficult. Doing this effectively can reduce the amount of air space inside the box, but oftentimes right-sizing the packaging slows the line, proves subject to rework, or fails to adequately protect products, causing hidden costs to mount up over time. On top of box size, you need to account for additional cushing or product protection in the forms of dunnage and box strengths.

In the end there is no single silver bullet answer to this challenge, but single parcel optimization usually requires a blended approach of box sizing and dunnage strategy along with supporting technologies for box selection and proper training for the staff packing these shipments. Ultimately, a comprehensive project and plan to implement systemic changes will likely be required to achieve optimal business success and profitability.

So while an investment in packaging optimization technology can help alleviate some additional costs associated with Peak Season surcharges, it shouldn’t be viewed as a final solution. You also need to assess your packing materials to minimize damage that may occur with the order spike during peak season. Finally, you need to evaluate your data and carrier options to determine additional parcel services you can utilize for specific orders.

Don’t let the Peak Season Surcharge affect your bottom line this winter. With the holiday season and Q4 profit surge just around the corner, it’s imperative that you start planning accordingly. Putting a strategy together now will keep you from scrambling for options come November. Good luck and happy shipping!

Chainalytics Senior Manager Jim Haller leads the firm’s Parcel Spend Optimization offering, which enables multi-level organizations to reduce costs, improve service levels, negotiate better pricing agreements and generate cost savings of 8-15 percent on their parcel spend.

Kyle Ous, CPP, Business Development Manager, and Rich Lindgren, CPP, Senior Packaging Engineer, are members of Chainalytics’ Packaging Optimization team who also contributed to this article. Our Packaging Optimization team uses a holistic approach to assess your entire packaging value chain to identify cost savings and sustainable improvement opportunities that lead to increased customer satisfaction.

Read more about how Chainalytics supports our clients’ parcel spend optimization and packaging optimization success:

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