FedEx & UPS Shipping Rates

Before you can optimize your shipping costs or really just understand them, it helps to know how FedEx & UPS Shipping rates are calculated. Many people believe that the small parcel carrier shipping rates are simple. You just figure out how much something weighs and what zone it’s going to and there you go. Not so fast.

In actuality, the actual shipping cost is often less than half of the total amount you pay. Here’s why.

Billable Shipping Weight

Your base shipping rate is relatively easy to understand. You have a package of a certain weight and you want to ship it from A to B. Simple, right?

Well, not exactly. First, you need to determine your billable weight. The first thing you need to consider is whether or not your weight is over your minimum threshold. Most UPS and FedEx contracts have a minimum shipping charge. That means that no matter what something weighs if it’s below your threshold you pay for a billable weight.

This can often be 7 to 10 pounds. So if your minimum billable weight is 10 pounds, even if your package is only 4 pounds, you’ll pay the ten-pound rate. This is one of the reasons that USPS and Smart Post have a large share of the small weight single parcel market. They tend to be less expensive in these small weight ranges.

The other huge factor that can affect your billable shipping rates are DIMS or dimensional weight pricing. For packages under a certain weight or over a certain size, UPS and FedEx bill you based on an adjusted weight. That can have a huge effect on your final shipping charge, often doubling it.

Shipping Method

Once you have figured out at what weight the carriers are going to bill you, you also need to choose a shipping method. The main factors here are when do you want to get your package to the destination; overnighted or just whenever it gets there and whether the final destination is a business or a residence.

Expedited Shipping Costs

Expedited services are readily understood and their service promises are rather obvious. Next Day Air AM delivery means just that. The main thing to consider is whether you really need to be using that expedited service at all. Just because Ground could take up to a week to get somewhere, doesn’t mean that it will. The carriers don’t make any money storing your packages, so if the destination is two days away via ground, it usually gets there in two days.

The Franklin Parcel Platform has a nifty report that shows you all the packages that were shipped with an expedited service but would have gotten there in the same amount of time anyway. Sign up for Free and start using this report (and many others) to optimize your shipments.

Ground vs. Residential

Residential packages are more expensive to deliver than business packages. Businesses almost always have someone present to receive packages. Businesses tend to be huddled close together in business districts allowing the carrier to deliver multiple packages within a short range. All of this leads to lower costs.

So UPS and FedEx charge extra fees when you ship to a residence. If you tell them when you are configuring the shipment that the address is residential, then the fees are typically lower. The way to two carriers handle residential shipments is interesting to note as it does underscore many of the additional fees that can pop up.

FedEx Home Delivery is a completely separate supply chain. Often different trucks and different drivers. For that reason, FedEx really likes to know what supply chain to drop that package into. For UPS the difference is not so stark and really just affects the way routes will be routed. Nonetheless, it’s better to know ahead of time whether your destinations are considered business or residential.

One thing to note, is that the business criteria is not based on a business license. For example, a home office or other remote office may end up being considered residential.

Accessorial Fees

Accessorial fees are the most misunderstood part of your shipping bill and for good reason. There are hundreds of them. It can feel a bit like your dealing with the Master of the House from Les Mis.

These fees are complicated and deserve attention all their own. What’s important for you to realize is that they can comprise over half of your total cost of shipment. We have articles on several of these accessorial fees. Here is a list of the ones that you are most likely to see:

• Fuel Surcharge
• Delivery Area Surcharge
• Extended Delivery Surcharge
• Signature Required Surcharge
• Peak Season Surcharge

It’s really important that you understand how these fees are affecting your overall shipping rates. It can be difficult. The invoices the carriers give you show you the fees but often in random ways and never in the aggregate. Franklin Parcel clients (it’s totally free by the way) – can run a report like this one that shows you exactly how fees are impacting your overall shipping rates.

These extra fees are how the carriers are making their money while you’re not paying close attention. All the attention goes to the annual rate increase which in the grand scheme of things can feel pretty small. The rate increase is only 3% or so most years.

But each time the carriers announce the general rate increase they also announce new fees, modified shipping fee rates or even changes in how they calculate the fees. One of the most interesting fees to watch has been the DIM factor which we described above. When that dropped to 139, it was a huge blow to many shippers and many didn’t even notice right away.

UPS & FedEx Rate Summary

I hope this article gets you a little closer to an understanding how UPS & FedEx shipping rates work. They can be complicated. That’s by design, but armed with a little information, you can make great strides in reducing unnecessary shipping costs.

For more information about shipping charges, see our blog post on the UPS/FedEx general shipping rate increase for 2018.