How to Manage Delivery Area Surcharges
April marked the month that a fresh round of delivery area surcharges kicked in for FedEx and UPS shippers. Together, FedEx and UPS are adding a delivery area surcharge to a combined total of 82 ZIP codes, mostly within major urban areas like Boston, Chicago, and Los Angeles. Together, this affects nearly 1% of the total U.S. population.
So, if you haven’t been paying much attention to delivery area surcharges of late, now is the time to start.
Not surprisingly, DAS fees play a big role in shaping your overall shipping costs and the additional shipping fees that your business has to foot the bill for. When you’re shipping to certain zip codes, a delivery area surcharge is bound to make an unwelcome appearance.
So, how are delivery area surcharges being applied, and what are the best ways for eCommerce shippers to save money and avoid the sting on your shipping invoices?
First off: What are delivery area surcharges?
A Delivery area surcharge (DAS) is a type of accessorial surcharge levied by regional and national carriers. A delivery area surcharge comes into play when packages are delivered to geographic areas that are considered more difficult to access. This surcharge is applied whenever a delivery destination falls within a ZIP code or region that is outside the carrier’s standard delivery service area.
Delivery area surcharges are typically applied on top of base shipping rates and are calculated based on the postal carrier, the delivery destination, and the service level. Note that delivery area surcharges are different from a General Rate Increase (GRI), the rate hikes that kick in at the beginning of each year as shipping carriers compensate for rising operational costs.
Why do carriers levy delivery area surcharges?
Imagine that one customer in New York City and another in Anchorage, Alaska both place orders for the same item from your eCommerce store.
Densely-populated urban areas like NYC boast numerous sortation centers and established delivery routes, meaning that transit times are short and shipping carriers can handle a high volume of packages on a single delivery run. While traffic does pose a challenge to delivery timeframes, it’s a pretty efficient process overall.
However, delivery to a location like Alaska is a lot more challenging. It’s not located on the U.S. mainland, which requires both a longer transit time and multiple shipping methods such as air and ground to reach. There are relatively few urban areas and harsh weather conditions can make travel extremely challenging, especially during the winter. So, national carriers impose a remote area surcharge to compensate for the increased costs associated with delivering to remote and less accessible areas.
In sum, the costs involved in shipping to a zip code in Alaska far outweigh the costs of shipping to NYC. Levying a delivery area surcharge helps shipping carriers manage the delivery costs incurred by each shipment.
Types of DAS fees
Delivery area surcharges are broken down into different types of fees, depending on the delivery scenario:
Residential delivery surcharges. Residential surcharges are a standard surcharge applied to any shipment that’s bound for a residential address. This is designed to compensate for more inefficient ground services, as residential deliveries each have a unique delivery address, instead of being aggregated like commercial shipments. Typically, residential surcharges are the cheapest type of a DAS charge, but also the hardest to avoid.
Extended Delivery Area Surcharges. Extended delivery surcharges apply when a shipment is delivered to an address beyond the standard delivery zone used by the carrier, and affects both residential and commercial deliveries. An extended residential delivery area surcharge will usually affect deliveries to far-out suburban areas or rural areas that require longer, less efficient delivery routes, while a commercial extended delivery area surcharge is more geared towards high delivery volumes.
Remote Area Surcharge. This extra fee applies when a shipment is delivered to extremely remote areas that are far off any standard delivery routes. Remote area surcharges are generally the maximum charge for DAS because they involve the most additional time and resources to deliver.
Hold up: If DAS fees typically cover hard-to-reach locations, why are FedEx and UPS targeting big cities?
Given the explanation we’ve just given, these upcoming UPS and FedEx DAS charges probably don’t make a whole lot of sense. If denser metro and urban areas lead to more efficient delivery, surely places like Chicago and Los Angeles should be subject to fewer shipping surcharges, rather than more?
The answer is that delivery area surcharges are about far more than just the logistics of delivery. While big cities may be home to more delivery drivers, distribution centers, and shorter travel distances, parcel carriers are also having to reckon with other challenges, like:
Densely populated areas offer other challenges. They might note far-flung delivery destinations, but larger cities can increase postal service costs in other ways. For example, carriers often have to pay tolls for bridges or tunnels when delivering within downtown areas, which results in added fees.
Demand for parcel services is soft. After the constrained environment we saw during COVID-19, shipping carriers are struggling to bolster profits as shipping volumes fall and consumers return to in-store shopping. So, additional fees like delivery area surcharges offer a way for carriers to increase their margins.
The result? Parcel carriers are looking to make a few extra bucks in any way they can – especially if they can leverage high-population areas where the majority of businesses are shipping to.
Effective ways to manage delivery area surcharges
Since you can’t change the zip codes where your business needs to ship to, what can you do to keep those DAS fees down?
Package consolidation. Condensing orders bound for the same address into one shipment may increase the total billable weight but helps to reduce DAS fees and other accessories charges that apply on a per-package basis.
Order pick-ups. Offering customers the option of picking up their packages from commercial addresses is one way to avoid residential delivery area surcharges, as the commercial surcharge cost is typically less than for remote locations.
Shop around between carriers. The zip codes that are subject to DAS fees will differ between shipping carriers, depending on whether they are national or regional carriers. If you’re shipping frequently to a short list of specific zip codes, it’s important to check which are subject to surcharges by your chosen carriers. Zip code changes for DAS charges are also frequent, so it pays to check regularly to make sure that you aren’t set for an unexpected jump in shipping fees.
