It’s getting more expensive to ship online orders to your customers. That shouldn’t come as a surprise—January rate increases from the national carriers have become almost as certain as death and taxes. FedEx and UPS have announced 5.9% rate hikes for basic ground shipping in 2024. We’re waiting to hear from USPS.
Of course, those rising base rates are only a portion of last-mile delivery pricing. For e-Commerce deliveries, residential and fuel surcharges can boost your shipping rates by several dollars per package. During the holiday peak season, additional demand surcharges increase as a shipper's volume increases. This might be the only competitive industry where customers are penalized for using more of a provider’s product.
Last-mile delivery costs can easily exceed 10% of the total value of a sale, and those costs continue to rise. Luckily, in the large urban markets where most ecommerce customers live, brands have options beyond the major carriers. But before we look at those options, let’s take a more detailed look at the progressive price increases from major carriers during the past few years.
2023 Holiday "Demand" Surcharge Update
Industry leaders are reporting on 2023 peak season surcharges from legacy carriers, as well as regional carriers, including OnTrac, GLS, and Lone Ship Overnight (LSO). The chart below was from Nate Skiver's most recent LinkedIn post that summarizes which companies are imposing holiday surcharges in 2023 and which are not. AxleHire is happy to announce that it is not imposing peak season surcharges.
Legacy Carriers Annual Shipping Price Increases for 2024
FedEx and UPS annually review their costs and profitability and make corresponding adjustments to their general rate schedules. Annual price increases reflect changes in labor costs, fuel costs, operational costs, and a desire to maintain or grow profit margins and ROI for their shareholders.
FedEx Increases Rates for 2024
You can see from the chart that FedEx has made a habit of boosting rates by roughly 5% or more each year (as high as 6.9% in 2023) over the past ten years, with increases generally exceeding annual consumer cost of living (CPI) increases, sometimes by several points. For example, CPI increased by 1.4% in 2020, but at the end of 2020, FedEx raised rates by 5.9%. The announced increase of 5.9% for 2024 aligns with this pattern.
The Hidden Increase that FedEx Never Talks About
There’s an extra hidden increase that FedEx never talks about in their press releases. Fuel surcharges are added to your invoice each month based on the weekly price of diesel fuel. Because fuel surcharges are based on a percentage of your total spend, each time the base rate increases, your fuel surcharges increase, too. So even though it won’t take more fuel to deliver your packages next year than it would take to deliver those same packages this year, you should expect a 5.9% increase in the fuel surcharge line item on your invoice.
See the chart for an outline of historical price increases.
UPS Increases Rates for 2024
After UPS reached a 5-year contract with Teamsters in the summer of 2023, it was inevitable that prices would be rising for 2024. While UPS’ labor costs will increase immediately by an estimated 8-9%, UPS has chosen to match FedEx’s 5.9% general rate increase for 2024.
Like FedEx, UPS has habitually boosted rates by roughly 5% or more each year (as high as 6.9% in 2023) over the past ten years, with increases generally exceeding annual consumer cost of living (CPI) increases. The announced increase of 5.9% for 2024 aligns with this pattern.
UPS' Hidden Price Increase
The hidden increase described above for fuel surcharges at FedEx is also true for UPS. If your base rate for 2024 is going up 5.9%, you should expect a 5.9% increase in the fuel surcharge line item on your invoice.
See the chart for an outline of historical price increases.
USPS Pricing for 2023-2024
USPS reviews and revises rates twice per year, in January and July, but there has yet to be news on a possible January price increase for parcels.
There is at least one piece of good news for USPS customers—the post office will not be implementing peak season demand surcharges for the 2023 holiday season. This is the first time they will not be imposing peak season surcharges in three years since the 2020 COVID-19 pandemic-fueled spike in online shopping that USPS began implementing peak season surcharges. In the 2022 peak season, the post office charged additional fees, ranging from $0.25 to $6.50 per parcel.
According to the Postmaster General and CEO Louis DeJoy, USPS is "strongly positioned to be America's most affordable delivery provider this holiday season."
OnTrac Increases Pricing for Peak Season
While most recent rate increase news has been related to national carriers, it’s not limited to the big three. Regional carrier OnTrac is implementing peak season demand surcharges this holiday season, similar to the demand surcharges at FedEx and UPS.
For the 2023 holiday season (October 28, 2023, through January 12, 2024), the regional carrier will implement a surcharge of $1.35-$6.40 per package. This is nearly identical to ‘Demand Surcharges’ at FedEx and UPS. The more seasonal your business and the more successful your holiday promotions, the higher the surcharge. That’s in addition to fuel surcharges that can add another 14-21% to the cost of shipping a parcel year-round (14-15.25% from April to October 2023, as shown in the chart).
See the chart for a breakdown of OnTrac's recent fuel surcharges in 2023.
Lone Star Overnight (LSO) Increases Pricing for Peak Season 2023
According to recent reports in Freight Waves (syndicated on Yahoo Finance and Barchart), LSO will assess a $1.50 per package peak surcharge for all residential deliveries, between October 30 and January 7, 2024. Additionally, LSO is reported to be assessing a 5.9% general rate increase, which goes into effect on January 1, 2024, for all shipments not “tendered under contracts.”
Time for a Reality Check
The greatest threat to the continued growth of ecommerce might be the spiraling cost of shipping. Consumers want free shipping, and over 60% will abandon their shopping carts if a free delivery option is not available. How do retailers balance the consumer demand for ‘free’ with the seemingly never-ending increases in parcel delivery costs from national carriers? What is the pain threshold for consumers as retailers try to pass on increased shipping costs in the form of higher prices for goods and/or higher minimum purchases for free shipping?
If all of this sounds familiar, it might be time for a reality check. With national carrier shipping costs consistently rising faster than inflation, how long will the current ecommerce business model be sustainable? What other options are available?
Regional Providers Can Deliver Alternatives
Luckily for ecommerce brands, the national carriers do not hold a monopoly on last-mile delivery in most major metro areas. Regional last-mile delivery providers like AxleHire can often provide faster service with higher on-time delivery rates for consumers, along with greater transparency and a more personalized customer service experience for shippers; all at competitive rates and with no residential or peak demand surcharges.
AxleHire can do this because, unlike the national carriers who built their business models for B2B delivery, AxleHire's service was designed from the ground up to provide the most efficient and reliable urban residential delivery service available.
How Does AxleHire Compare with FedEx and UPS Pricing?
AxleHire can provide same- and next-day deliveries with rates comparable to national carrier ground rates and without all the added surcharges and exorbitant annual increases that drive up the delivery price for every parcel.
AxleHire does this with an on-time delivery rate in excess of 99% while providing brands with a differentiated delivery experience and unmatched customer service that legacy delivery carriers cannot match.
To learn more about how AxleHire can help you lock down spiraling last-mile delivery costs while improving service levels to your customers, connect with one of our logistics professionals.