News / FedEx unfazed as USPS and Amazon drop some peak surcharges

Online merchants have one more factor to consider in their choice of parcel carrier for the upcoming peak season.

The US Postal Service (USPS) is dropping peak surcharges this year, whereas FedEx and UPS are levying extra charges; Amazon, which introduced a peak surcharge last year for the first time, is also keeping it in place for third-party sellers, but is not going to charge extra on its shipping ground service.

It the first time since 2019 that the USPS won’t charge an extra premium on peak season volumes, a decision management explained in terms of capacity and cost.

The agency has boosted its processing capacity by 10 million packages a day since last year, to 70m. By mid-September, it had installed 100 new sorting machines and was striving to add 47 more before the start of the peak season. It has nearly tripled its capacity since 2020.

And management expects to spend significantly less on labour this autumn, planning for just 10,000 seasonal workers, far fewer than in previous years. This is the result of the rise in full-time USPS jobs under a 10-year transformation plan, launched in 2021, and of expectations of a less-pronounced peak surge this year.

The USPS will also repeat an early morning delivery programme in markets with above-average volumes, introduced last year. Parcels in select markets will be delivered between 6am and 9am to reduce volume during regular delivery hours.

Costs should also be lower in part as a result of a projected drop in volume this holiday season. Citing depleted savings and cost pressures on consumers, forecasters expect holiday sales volume to be about half that of last year.

The USPS is clearly out to grab a larger share of the market in the coming months. In addition to the early delivery windows in some markets, it is looking to leverage its new Ground Advantage service that was rolled out in July. This amalgamated the First Class Package Service, Parcel Select Ground and Parcel Select Ground Cubic offerings, targeting traffic in different size/weight segments. With transit times of two to five days, it aims at shippers that prioritise cost over speed.

Observers have commented that the postal agency’s push will increase overcapacity in the parcel market and add to the pressure on pricing, but some question the timing, asking why the announcement to forego a peak surcharge was not communicated earlier.

Meanwhile, the integrators are sticking to their peak surcharge strategy. In the main, UPS charges $7.50 per extra package between late October and mid-January, and $6.40 on its ground residential and SurePost services. FedEx peak surcharges are marginally higher.

In an earnings call, FedEx chief customer officer Brie Carere dismissed the USPS pricing move as l’argely irrelevant’, arguing that the integrator’s peak surcharges primarily targeted large customers that experience volume surges.

“The vast majority of our customers actually do not pay a peak surcharge, because their volume just doesn’t flex up enough to qualify,” she said, adding that the surcharges were an important part of the company’s strategy to invest in its network.

Ms Carere was also dismissive of Amazon’s decision to drop it surcharge for its fulfilment ground service. She argued that shippers were wary of Amazon as a potential competitor to them – unlike FedEx.

The e-commerce giant announced last month it would be charging third-party sellers between $0.20 and $2.50 on its fulfilment service, but told online merchants this month it was not levying a surcharge on its Amazon Shipping ground service, which is limited to 15 metropolitan areas in the US.

According to a new survey by shipping platform ShipStation, more than half the US consumers that participated in July said they would be willing to pay up to $9 extra to receive same- or next-day deliveries, or deliveries made during a specific day and time slot.

While this would validate the integrators’ surcharge strategy, it could also pay dividends for Amazon. Unlike the majority of e-commerce sellers and parcel delivery companies, it is planning a massive recruitment drive to hire 250,000 seasonal workers for this peak season to expand its same- and next-day deliveries.

Meanwhile, Amazon is under increasing scrutiny by antitrust authorities for its business practices.