The New Era of Shipping Costs: What Businesses Need to Know

In a recent episode of Parcel Perspectives, an enlightening discussion led by Glenn Gooding with guest host Brett Haskins, COO of iDrive Logistics, dives deep into the pressing topic of demand surcharges. With predictions pointing to 2025 as the most expensive year for shipping yet, businesses need to prepare for a changing landscape of higher costs and new surcharges. Below, we break down the key insights from their discussion and offer actionable strategies for shippers.

End of Subsidized Shipping

The days of subsidized shipping are fading, with customers now shouldering more of the shipping burden. Major carriers like UPS, FedEx, and the US Postal Service are restructuring their pricing to better align with market pressures. These adjustments are not only here to stay, but they're also reshaping how businesses handle their shipping costs.

Hyperinflation’s Impact on Shipping

A major factor driving these increases is hyperinflation, particularly in fuel costs, which have surged over 104% in just the past three and a half years. This ripple effect extends through the entire supply chain, leading to significant jumps in small parcel shipping expenses.

The Evolution of Surcharges

Since their introduction in 2017 as “peak season surcharges,” these fees have evolved into year-round “demand surcharges.” What started as a response to unexpected operational challenges has now become a tool for carriers to manage capacity and maximize revenue across all seasons—not just during the holidays.

How Shippers Can Strategically Respond

1. Accurate Demand Forecasting

To mitigate the effects of surcharges, businesses should prioritize precise demand forecasting. By leveraging historical data and analyzing market trends, companies can anticipate peak volumes and fine-tune their shipping strategies accordingly.

2. Strengthen Carrier Relationships

Maintaining diverse carrier relationships is essential to avoid being locked into a single provider’s surcharge policies. Partnering with multiple carriers, including regional ones, offers flexibility and options, even though some may still impose surcharges.

3. Build Supply Chain Resilience

Supply chain redundancies are crucial for operational flexibility. Working with experienced 3PL partners can help businesses stay agile, ensuring that shipping disruptions are minimized and shipping operations continue smoothly.

4. Negotiate with Carriers Early

Strategic planning and early discussions with carriers about peak season logistics are vital. Proactively aligning on capacity and costs can help mitigate the impact of surcharges.

Adjusting Pricing Strategies for Surcharges

With shipping costs on the rise, businesses need to rethink their pricing strategies. Folding these surcharges into product prices can put you at a competitive disadvantage, especially for lower-value products. Some businesses may choose to absorb these costs, while others might pass them along to customers gradually to avoid sudden sticker shock.

Navigating the New Normal of Surcharges

Demand surcharges are here to stay. Unlike their seasonal predecessors, these fees can now be applied at any time—including during unforeseen events like black swan disruptions. This new norm requires businesses to stay adaptable and vigilant about shifting surcharge policies.

Prioritizing Customer Experience

In an era of rising shipping costs, providing a seamless customer experience is more important than ever. Ensuring smooth shipping operations can reduce cart abandonment and boost customer retention, particularly during the all-important Q4 retail rush.

The Value of Expert Guidance

In such a complex and evolving shipping landscape, seeking expert guidance can make all the difference. Industry specialists can help businesses fine-tune their shipping strategies, stay compliant with new regulations, and protect their profitability.

Conclusion: Adapt to Thrive

As UPS, FedEx, and other carriers adjust their surcharge strategies, businesses must adapt to stay competitive. By forecasting demand accurately, nurturing carrier relationships, and maintaining supply chain flexibility, shippers can effectively manage rising costs and maintain profitability.

Listening to experts like Glenn Gooding on Parcel Perspectives offers invaluable insights into these changes, giving businesses the foresight they need to thrive in the new era of shipping. As we approach 2025, proactive planning and continuous learning will be key to staying ahead in this ever-evolving landscape.