How brands are accounting for holiday shipping increases
To digitally-native brands, the holiday surcharge has become part of the cost of doing business, thanks to the e-commerce boom over the past few years.
All the major carriers, from UPS to USPS to FedEx, add on extra fees that often run from the fall into the new year. These peak surcharge fees are meant to account for the fact that the holidays are their busiest season, and they have to handle significantly more packages. And post-Covid — as people do more online shopping in general, these fees have gotten more expensive. This year, for example, both UPS and FedEx proposed a 5.9% temporary increase for parcel shipping. But in total, UPS and FedEx have increased their base rates by more than 30% between 2019 to 2024.
E-commerce brands have now come to expect the holiday surcharge and plan for it in a myriad of ways. For example, brands can try to negotiate and lock in carrier rates early in the year to avoid paying the going rate during the peak window. Another increasingly popular tactic is to run holiday promos earlier to help spread out shipments throughout the season. In some cases, brands are also encouraging customers to bundle orders to reduce parcel delivery costs.
Scott Tannen, founder of bedding brand Boll & Branch, said that since the pandemic’s disruptions, “shipping costs have become a moving target.” Bedding brand Boll & Branch mostly ships through UPS. Tannen added that despite making big headlines, this year’s UPS hike announcement “wasn’t unexpected and was something we had actually already budgeted for.” Most of these UPS surcharges will take effect on October 27 and apply through January 18.
The lesson from the last few years, Tannen said, is to constantly consider fulfillment budgeting planning for the holiday period. “But that requires you to have a really, really accurate forecast,” he said, which helps with negotiating rates and avoiding the fees that come with last-minute changes in delivery schedules. These last-minute fees are dependent on several factors for each brand, such as spend volume, package weight, and how quickly they need it shipped out.
Tannen said that, especially with so many DTC brands trying to grow sustainably now, avoiding surprises during peak seasons is key. “If you’re caught in a bad spot, depending on the size of your company, that could be the difference between being profitable and not being profitable,” he said.
It also helps to get products into the U.S. earlier. “Given the looming port issues that we were afraid of, we built in an extra 16 days of our goods just to get here from India, which is where most of them come from.”
Dennis Moon, the COO of Roadie, a UPS company and crowdsourced delivery platform, said holiday window surcharges have become standard in the last few years. Overall, Moon said, shipping costs have gone up compared to pre-pandemic due to all the major carriers implementing annual increases to cover their operational costs. “One other thing I noticed is some of the naming changes; they won’t call it a ‘holiday surcharge’ now – it’s a ‘peak surcharge,’ but it’s still pretty much the same thing,” Moon explained.
Other factors are also adding to these surges, Moon said. One example is the shorter turnaround time for fulfillment this year due to there being fewer days between Thanksgiving and Christmas. Moon said the last time there was this much pressure on the system was in 2019. The tight window also creates likelier scenarios of last-minute shipment requests, which can get expensive for merchants. “We know we’re going to have bottlenecks, especially if the weather patterns turn out to be disruptive,” Moon said.
Still, Moon said there are a few tactics that can help brands and retailers offset some of these shipping costs.
“Negotiating early is always the key,” Moon said. “We tell people to try to lock in a contract during the summer so that you’re not surprised and you’re not at the mercy of what the current bill rate is.”
He also pointed to retailers spreading out order shipments by running early seasonal sales. This alleviates pressure from the Black Friday week rush, which Moon says tends to be the most expensive window to ship during. “And the customers are typically willing to wait longer,” he added. Similarly, more retailers are following in the footsteps of Amazon by incentivizing customers to bundle their packages to be delivered on a specific day.
On the packaging side, Moon said the biggest change in recent years is the growing trend to ship items in their original container. While it saves on packaging costs and is more environmentally friendly, Moon said the retailer runs the risk of theft of valuable items.
Still, overall, these charges aren’t the biggest thorn in the sides of brands this year, as they’ve figured out ways to deal with the surcharges over the years. Judah Abraham, the founder and CEO of fragrance and beauty incubator Slate Brands, estimates that shipping costs around the holidays have consistently gone up 12% to 15% for his company in the past two years. “But it’s pretty comparable with the cost of everything going up, like labor, which is an even bigger issue,” he said.
In that, the increases year-over-year aren’t “crazy high,” Abraham said. However, Slate now must factor it into the pricing strategy during the production phase. “We’re always trying to get the cost down by going over every statement and asking about each charge.” For example, double-checking line items to ensure the right rate was applied based on the weight and dimension of the packages. Slate Brands has also been increasingly investing in carrier insurance to cover damage or theft. It’s an important investment for a company that sells delicate products like glass fragrance bottles.
Abraham also said there are more options than ever from the major carriers. Slate now toggles between multiple carriers, including UPS or USPS’ Select or Parcel Select options. And the carriers themselves also have a myriad of programs. For example, last year, Slate started using USPS’ Ground Select program, now called Ground Advantage. It was an option that was launched for merchants last year and gives business customers the ability to ship packages up to 70 pounds in two to five days at competitive prices starting at $4.75. Slate uses this when it’s not using UPS. “With that, the double-digit percent surcharge is much more palatable,” Abraham said.
Overall, Slate Brands’ Abraham said running an e-commerce business requires an adaptive playbook many brands build during the pandemic’s peak supply chain disruptions. “Now, when we produce an item, we expect there to be delays,” Abraham explained, such as expensive or delayed shipping from Asia, as well as all the carriers temporarily raising the pricing.
“To me, the rate fluctuations are just the way of the world now,” Abraham said. “I’m happier to pay more as long as the customers get the orders. That’s my biggest concern.”