UPS, FedEx, and DHL: Comparing Domestic Shipping Options for Small Packages

Category:Shipping
Editor's Note

Article has been updated to reflect 2020 holiday surcharges for UPS and FedEx.

Sellers are always looking for cost effective shipping solutions to get their products to customers faster without sacrificing reliability and quality. Companies who sell smaller items, anything under 10lbs—consumer electronics, health & beauty supplies, or consumer packaged goods —have a few options for their small parcel shipping strategy. The most used are UPS Surepost, FedEx Smartpost, and DHL eCommerce. All three have many similarities, yet some distinct differences, yet many companies may not know which one is truly right for their products and brand. .

Ecommerce growth and the demand for direct-to-consumer shipments has exploded over the last decade and accelerated during the COVID-19 epidemic. In 2020, it’s forecasted that US ecommerce sales will surge 18% to $700 billion, representing an all-time high of 14.5% of total retail sales. Direct-to-consumer shipping costs can make up as much as 70% of a company’s total fulfillment costs and can be a material percent of the average order value. Now more than ever sellers are highly incentivized to find ways to optimize their shipping to be faster and more affordable.

Benefits: UPS Surepost, FedEx Smartpost, and DHL eCommerce

These services are each carrier’s solution for cost-effective smaller package shipping within the US. They leverage the United States Postal Service (USPS) for arguably the most expensive part of the shipping process, the last mile. It is estimated that the last mile costs as much as 28% of the total transportation costs so UPS, FedEx, and DHL leverage USPS existing infrastructure, including the post office, mail trucks, and postal carriers, instead of their own. As a result, the carriers can reduce costs and offer the sellers additional savings, all without compromising speed and reliability. 

On average, sellers can expect to save 20%-30% on shipments when compared to other ground shipping options, like UPS and FedEx Ground, where the carriers use their own transportation and employees from pick up to delivery. While the other services might be faster or more reliable, the cost savings recognized might be enough for a seller to consider switching to Surepost, Smartpost, or eCommerce.

In addition to cost savings, there are a number of benefits all three services provide, including:

  • Saturday deliveries: Sellers get the benefit of deliveries 6 days a week without incurring additional fees

  • Residential surcharges: It’s common for other ground shipping services to incur residential surcharges, but Surepost, Smartpost, and eCommerce have limited surcharges. The types of surcharges by carrier service are listed below.

  • Available tracking: Tracking provides the seller and end consumer the ability to track their package throughout the transportation process. However, tracking can be limited when it is handed over to USPS for last mile delivery.

  • P.O. Box delivery: Most of the services UPS, FedEx, and DHL offer do not provide P.O. Box delivery, but since they use USPS for these particular services, sellers can send to P.O. boxes.

  • Insurance: There is a $100 replacement value service insurance in the event the package is lost or damaged while in the hands of the carrier. None of the carriers’ insurance covers  lost or damaged packages once it’s passed to USPS.

Differences: Surepost, Smartpost, and eCommerce

While all three services share the primary attribute of offering a cost-effective solution for selling shipping small packages, there are important differences between them that a seller must understand during their evaluation process. Some of these differences may seem trivial, but could ultimately have a major impact on the shipping costs and delivery speeds.

💡 Pro Tip: Factoring Dimensional Weight

It’s important sellers factor in dimensional weight (DIM) early on in the packaging design process. While actual weight is the primary way the shipping cost is determined, the DIM can add material costs. DIM becomes a more significant factor for sellers with large, light weight packages.

UPS Surepost

In 2019 UPS delivered 21.9 million packages each day, totaling 5.5 billion, making it the largest (by deliveries) of the three carriers. UPS has physical retail stores throughout the US and often small, independently owned by franchisees. 

UPS Surepost has a fuel charge for every package which varies by month. On average, sellers should expect to pay between 5% to 7% fuel surcharges in addition to initial shipping cost. Fuel surcharges are disclosed upfront and quoted when the order is initially processed and shipped. 

Delivery area surcharges, categorized as accessorial charges, may be added to the shipments once the shipment is delivered. Delivery area surcharges are added to specific zip codes, primarily because they are in hard to reach or rural areas. These fees can range between $1.95 and $2.45 but impact less than 10% of the US zip codes. Most sellers won’t be materially impacted by these surcharges.

Another factor that sellers need to account for when calculating shipping costs that vary by carrier is dimensional weight (DIM). While physical weight is the weight of the shipment according to the scale, dimensional weight is calculated based on the package’s length, width, and height. UPS Surepost DIM factor is calculated for every package regardless of dimension or weight and the seller is charged for the greater of the two. The cost difference can be meaningful, especially for sellers who have lite weight shipments in large boxes.

The manner in which UPS passes the packages to USPS is slightly different as they take the packages directly to the local post offices as opposed to larger USPS distribution centers. Additionally, UPS delivers approximately 40% of the Surepost package to the end consumer using their own trucks and employees. By handling some of their own packages for last mile delivery, there is an increase in delivery speeds, quality of service, and reliability. 

FedEx Smartpost

FedEx is the second largest carrier of the three, delivering an average of 16 million packages per day in 2019. They have a large physical presence with over 2,000 owned and operated stores, FedEx Office.

FedEx Smartpost has fuel and accessorial surcharges similar to UPS Surepost. They charge between 5% and 7% fuel surcharge which is disclosed and charged upfront. They also follow a very similar model for delivery area surcharges. The specific zip codes between Smartpost and Surepost do vary between the two services.

Like UPS, FedEx factors the dimensional weight (DIM) for every package, regardless of dimensions or weight, so both physical weight and DIM weight are considered when calculating the cost of the shipment. 

Lastly, FedEx injects Smartpost in the USPS system at USPS distribution centers as opposed to taking it as far as the local post offices. This can result in slightly slower speeds and degraded service levels. Recently, FedEx has ramped up their efforts to deliver Smartpost products themselves with nearly 50% of the Smartpost packages delivered by a FedEx truck and driver.

DHL eCommerce

DHL eCommerce is one of two transportation companies owned by Deutsche Post DHL Group. DHL eCommerce provides domestic and international shipping services, while DHL Express exclusively focuses on international services. DHL eCommerce has three products that are comparable with Surepost and Smartpost: SmartMailParcel Plus Ground, Expedited, and Expedited Max (or eMax). Although there are many nuances that distinguish these three DHL eCommerce services, there are a few important broad differences that make a difference for small parcel shipping.  All three have a weight range of 1 to 25 pounds with the primary differentiator being the delivery speeds of each.

DHL eCommerce has a flat rate fuel surcharge that is charged by the pound which differs from the percentage rate that Surepost and Smartpost charge. For example, in August 2020, DHL eCommerce charged a fuel surcharge for $.03 per pound and Smartpost charged 5% of the cost of the shipment. For a 5lb package that cost $7 to ship using either service, the seller would pay $.15 (5 lbs X $.03 per lb) versus $.35 ($7.00 X 5%) in fuel surcharges for DHL eCommerce and FedEx Smartpost, respectively.

DHL eCommerce treats DIM weight slightly differently than UPS and FedEx as they do not charge a DIM factor for packages less than one cubic foot. This can make a significant pricing difference for lite weight packages in larger packaging.

Since 2003, DHL eCommerce has used USPS exclusively for their last mile delivery and they inject their packages into USPS distribution centers. Unlike UPS and FedEx, DHL eCommerce has less control of their packages in regards to delivery speeds and reliability since they don’t use their own delivery trucks or employees for any of their last mile deliveries.

COVID Impact

As the surge in ecommerce sales has been a boon for many online sellers, transportation carriers had to ramp up their operations to keep up with the shipping demand. Compared to the same time last year, UPS and FedEx shipping volume increased by 23% and 20% in Q2 2020, respectively. However, labor shortages and capacity issues in the transportation chain have created delays. Since March, deliveries for Surepost, Smartpost, and DHL eCommerce have averaged delays of one to three days.

UPS and FedEx have implemented additional delivery surcharges due to the spike in shipping volumes. In June, FedEx implemented a $.40 surcharge for each package and there is speculation that these fees will increase over the holidays. In August, FedEx announced that they will implement a holiday surcharge from November 7th, 2020 to January 17th, 2021 ranging from $1 to $2 surcharge per package depending on when the package is shipped. UPS recently announced an escalating surcharge as customers send 110%, 200% and 300% more shipments than their average weekly shipping volume in February. These fees can be as much as $3.00 per Surepost shipment.

The impact COVID-19 will be felt for the foreseeable future and play a significant role in online sellers’ shipping strategy. Sellers using Surepost, Smartpost, and DHL eCommerce need take into account delivery delays and the additional surcharges when evaluating their options.

UPS Smartpost, FedEx Surepost, and DHL eCommerce: Infographic

If you are looking for a 3PL to help understanding which shipping options are best for you, or require logistics support we’d love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.