Getting the shipping detail each month from your carrier or 3PL can be overwhelming. There are so many fees and additional charges. As a growing ecommerce company, you want to understand what each line item means, how it’s calculated, and how to negotiate the best shipping rate for your brand. This post provides a breakdown of the most common transportation costs, how they are determined, and what you can do to optimize them.
Transportation Costs TL;DR
- Transportation costs can make up ~70% of a company’s overall budget.
- Private carriers don’t calculate surcharges the same way, including fuel, residential, and delivery area.
- Fuel surcharges aren’t just added to the base transportation fee, they can be added to peak surcharges, residential fees or others.
- Delivery area surcharges affect approximately 25,500 zip codes, out of 41,600 total zip codes in the US.
- Each major carrier has over 100 different types of charges and surcharges that are added on top of their base line transportation charge.
Overview of Transportation Costs
It takes a lot of resources to get products from the manufacturer to your warehouse, and then distributed to your customers. Because of this transportation costs can make up the bulk of an ecommerce company’s budget—sometimes accounting for up to 70% of your overall budget.
Transportation costs might be the last thing you want to spend time figuring out, but taking time to understand the many factors and fees that go into your overall transportation budget can be very beneficial to optimize your strategy, and not overpay for shipping.
1. Transportation Charge
All carriers have a base fee for each shipment. This is often called a transportation fee or transportation charge. This is important to note because it is a non-negotiable cost. Once you understand what a carrier’s base fee is, you’ll be better able to understand the additional fees, surcharges, and the rest of your transportation details.
2. Fuel Charge
Fuel is a huge part of transportation. Whether you move products by air, sea, rail, trucks, or you’re looking at last-mile delivery fees, fuel is one of the biggest factors of your overall shipping costs.
Fuel charges (and surcharges) vary greatly for two reasons: one, they are dependent on the market price of fuel, two, they are calculated by private shipping companies and each carrier calculates the surcharge in different ways. For example, UPS references two weeks of diesel costs to come up with an average, whereas FedEx takes a week of data to create their fuel surcharge.
Because they are tied to the global and regional market prices, fuel charges (and surcharges) aren’t something your ecommerce company has much influence over. When fuel is more expensive, all carriers will likely add a fuel surcharge. But knowing how your carrier calculates their surcharges will make a difference when weighing which carrier is right for your brand.
Shippers can, on occasion, negotiate the fuel surcharges with their carrier to get to a more favorable rate. If you work with a 3PL they are likely constantly negotiating fuel surcharges with all of the carriers they work with.
Fuel surcharges aren’t just added to the base transportation fee, they can be added to peak surcharges, residential fees or others. In the last year UPS has increased their fuel charge three times, it’s important to understand how this affects each service and shipment.
3. Delivery Area Surcharge
Delivering parcels to more remote or rural zip codes can be costly for carriers because it requires more resources (fuel, labor, infrastructure). To counterbalance the costs, most carriers charge extra. Remote delivery fees are split into two: delivery area surcharge (DAS) and the extended delivery area surcharge (EDAS).
Determining if an address falls under a delivery area surcharge is completely up to the carrier. And each carrier has different definitions for their “higher cost-to-serve” zip codes or areas.
It may be difficult to lower your DAS and EDAS fees if you have customers in remote areas. The surcharge also includes package pickup in remote areas. The average cost for this is $2.58, which adds up very quickly. If possible, use USPS or a regional carrier for your deliveries that go to remote area zip codes. Just be sure to choose a carrier that does not have DAS fees or has greatly reduced DAS fees. If you partner with a 3PL, ask them for advice on how to mitigate your costs shipping to remote areas.
In Q4 of 2021, 11% of UPS and 17% of FedEx shipments incurred DAS. Both carriers added more zip codes to their DAS criteria; out of 41,600 zip codes in the US, 25,600 fall under some sort of DAS charge.
4. Peak Surcharges
During periods of high demand, carriers implement surcharges (usually a flat fee) on top of the base shipping rate to cover increased operational costs.
Peak season denotes a period with higher demand or a higher number of shipments than average. Peak season most often refers to the weeks in between Black Friday and Christmas, when many people are buying more and expecting packages to arrive by a certain date. But as ecommerce and online purchasing have continued to grow increasingly due to the COVID-19 pandemic and people staying at home, carriers have implemented peak season surcharges at all times of year.
While peak surcharges are usually temporary fees applied to the base rate, in the past two years carriers have implemented peak surcharges that haven’t gone away. As an example, see this chart of 2023 peak season and demand surcharges, they were added throughout the course of the year, some without an end date.
5. Residential Fee
Residential shipping fees help cover the cost of the additional labor required when a carrier picks up or delivers a shipment to a non-commercial address or area.
It may seem obvious what constitutes a residential address, versus a commercial (or business) address, but different carriers define this differently. UPS, for example, deems a commercial address as a building that has a door that is open to the public. Under their rule a business that is run out of a home is still just a residence and will incur this additional residential surcharge.
The major private carriers each have services that hand packages off to USPS for the final mile. FedEx’s Ground Economy (formerly SmartPost) and UPS SurePost are examples of a shipping option that would eliminate any residential delivery surcharge.
Other Shipping Fees
All major carriers have over 100 different types of charges, outside of the most common fees listed above. Here are some of them.
- Signature required – the fee if your package requires the carrier to collect a signature from the recipient.
- Government charges – fees collected importing or exporting of goods.
- Adjustment charges – the balance of fees charged from a past carrier invoice for the same shipment.
- Address correction — when a package has an incomplete or incorrect address that the carrier must seek to correct.
- Saturday surcharge — pickup or delivery that occurs on Saturday, outside of the normal Monday – Friday work week.
- Oversize package surcharge — applied to shipments that exceed the weight or size threshold denoted by the carrier.
If you are looking for a 3PL to help support your ecommerce brand, reach out to DCL Logistics for a quote. We have helped many brands lower their overall shipping costs and look at their shipping data to find which carrier and which service is the best for their brand.