Manage Accessorial Charges to Lower Shipping Costs

Beyond the standard shipping rates paid by shippers, accessorial charges play a crucial role in determining the overall cost of shipping packages from A to B. These additional fees, ranging from address correction to redelivery or additional handling, can significantly impact a company's bottom line if efforts are not made to mitigate them.

The fact that accessorial fees are not charged until after shipment causes many businesses to trip up on the fine print. Nobody likes surprise charges - especially when shipping is already such a massive running cost.

In this blog, we're going to explore accessorial charges, how they are applied, and what businesses can do to prevent these additional fees from piling up.

What are accessorial charges?

Accessorial charges are additional fees or surcharges levied by parcel carriers on top of regular shipment rates. Accessorial fees are designed to cover scenarios that fall outside of the standard shipping services. This includes any extra services, resources, or time spent carrying out specific shipping requests or activities. Accessorial charges are normally charged on a per-shipment or per-package basis and accumulate as separate line items.

Why do shipping carriers apply accessorial charges?

The price paid by the shipper to send a package is carefully calculated to take into account a range of factors, including:

• Package weight
• Delivery route miles
• Destination
• Service level

But there is another side to this equation: The amount of operational resources and time it takes to process that package from beginning to end.

Because the need for additional handling or processing services may not become apparent until after the shipping rate has been paid, accessorial charges applied after the fact ensure that parcel carriers are not on the hook for those extra costs.

For example, if a parcel or envelope becomes stuck in a sortation machine and needs to be processed manually, an accessorial fee for additional handling ensures that carriers are compensated for the additional effort required.

What is the difference between accessorial charges and demand surcharges?

Accessorial charges and demand surcharges are terms that are used interchangeably when talking about additional fees levied on shipments. However, they are targeted at different scenarios.

While accessorial charges are targeted at compensating carriers for additional services, additional equipment usage, or time, demand surcharges are applied to cover increased operating costs during periods of high demand for delivery services. This is most common during the holiday season, though it can occur at any time of year when parcel volumes spike (as was seen during the COVID-19 pandemic).

Accessorial charges may increase temporarily during the holiday period in response to operational pressure on parcel networks. But demand surcharges are influenced by broader market factors, and so are not directly tied to additional services as accessorial fees are.

“The main difference for the shipper that is demand surcharges are volume-based, while accessorial surcharges apply to any package regardless of volume or destination,” says Sean Kim, Vice President of E-Commerce Experience and global Parcel Strategy at Ryder. “Demand surcharges are billed upfront, but an oversize or additional handling surcharge will get billed after the fact, which can come as a nasty surprise to shippers.”

There's another key difference that shippers need to take into account: While demand surcharges are almost impossible to avoid during peak season, accessorial charges can be prevented with the right planning and execution.

Common types of accessorial charges

Additional handling surcharge

As parcel sortation has become increasingly automated, most carriers will levy an additional fee when a package requires manual interaction beyond standard procedures. This could be due to a parcel's large size, fragile items, or packaging type. This type of accessorial charge is designed to compensate carriers for the extra labor and resources the additional handling requires, as well as the potential increased risk of injury or damage.

Example: A parcel or freight shipment may include special handling instructions for the parcel, such as "place this side up" which requires extra attention by delivery personnel. This may trigger an additional handling surcharge, especially if an advance notification is not given to the carrier.

Fuel surcharge

Gas is one of the biggest running costs for any transportation provider, so it's common for parcel carriers to pass on some of this cost if gas prices rise beyond levels that a base shipping rate can support. Fuel surcharges are dynamic, and may come into effect with little warning. Typically, they are set based on the current price of fuel, such as the U.S. Department of Energy's Diesel Fuel Index.

Example: UPS reviews its fuel surcharge weekly to ensure that it keeps pace with current fuel prices. As of 11/13/2023, there is a 15.25% fuel surcharge on all Ground Domestic shipments.

Address correction surcharge

Address validation is an important step in the shipping process. This is where the carrier checks that the address provided is accurate and deliverable. If the address provided does not match an address within the carrier's postal system, they may apply an address correction fee to cover additional labor and time taken to correct the delivery address. Common address mistakes that trigger accessorial fees on a shipment include incorrect postcodes, incomplete delivery addresses, or incorrect formatting which causes manual address validation to be required.

Example: An online shopper fails to include their apartment number on the delivery address, meaning that the delivery truck driver doesn't know where the package needs to be left. In this scenario, the parcel carrier will need to contact the customer to ask for additional delivery information, resulting in a surcharge.

Scheduled pick up surcharge

If a business wants the parcel carrier to pick up their parcels instead of going to the post office, this is an additional service that the carrier may charge for. This is more likely to occur if the pick up is taking place outside of the carrier's standard pick up windows or out of route miles, or if the shipper is not eligible for any volume-based discounts.

Example: If an e-commerce business wants a parcel carrier to pick up a group of priority packages from their warehouse on a Saturday, this may qualify for extra accessorial charges, either per package or as a percentage of the total shipping cost. USPS, for example, charges $14.75 for Pickup on Demand on Express Mail, Priority Mail, and Parcel Post services.

Delivery area surcharge

A delivery area surcharge (DAS) applies when a parcel carrier is delivering a package that is either outside of their regular area of operation or is more difficult or time-consuming to access. The surcharge helps to compensate for the additional cost and inefficiencies of delivering to these locations and may be applied according to zip code, delivery type, or infrastructure quality.

Example: Carriers often designate certain zip codes with higher delivery costs as being liable for delivery area surcharges. This is most common in rural areas, which are less accessible by major highways or airports. UPS levies extra costs of $2.10 per package that is delivered to a residential destination belonging to a specified list of zip codes.

Residential delivery surcharge

Deliveries to residential addresses are among the least efficient for parcel carriers to execute, since each address may only be the recipient of one package compared with multiple deliveries of hundreds of packages to commercial addresses. Residential delivery surcharges are designed to cover the higher operational costs of serving a residential area, such as apartment buildings and suburbs. This may take the form of an additional fee, or be calculated into the pricing structure of a particular service.

Example: Although it specializes in delivering to residential addresses, FedEx Home Delivery still applies a separate residential delivery charge of $5.15 per package in addition to the base shipping rate.

Large package surcharge

Packages that are larger than a certain size or weight dimensions specified by the carrier may be liable for a large package surcharge to cover the additional time and effort of loading or unloading these packages. Different carriers will use different criteria for determining when the surcharge is applied, including the length, width, height, and overall volume of the package. The size of the surcharge is either a flat fee or scaled depending on how much the package exceeds the carrier's size or weight limits.

Example: Given that large packages can be considerably more difficult for carrier personnel to load or unload, it's not unusual for large package charges to be some of the largest accessorial fees awarded by carriers. FedEx's oversize surcharge, for example, is determined by the number of zones a package is traveling, with a large package on FedEx Home Delivery costing $160 per package for zone 2.

Redelivery surcharge

If a package is unable to be delivered successfully to the delivery address given, the parcel carrier may impose a redelivery charge to cover the cost of making another delivery attempt. Failed deliveries can happen for various reasons, such as the recipient not being available, an incorrect address, or limited access to the property. Some carriers may provide one extra delivery attempt under the base shipping rate, while others may charge for all subsequent delivery attempts.

Example: If a delivery driver cannot find a secure place to leave a parcel that will keep it safe from theft, delivery regulations may demand that the parcel must be kept and re-delivered on a future delivery run.

How to manage accessorial charges for lower shipping costs

Avoid simple errors that trigger accessorial surcharges

Many of the most common accessorial charges are caused by mistakes on behalf of the shipper that take time and resources by the carrier to correct. Scenarios such as incorrect addresses, failed deliveries, and additional handling can be avoided entirely with a little extra preparation.

For example, implementing address validation into your shipping workflow ensures that you are using the right address before the parcel is in the hands of the carrier, reducing the likelihood of correction fees being applied. Ryder's platform, for example, uses carrier databases to ensure that addresses are spelled and formatted correctly.

Likewise, businesses can avoid redelivery charges by ensuring that customers are aware when their order is out for delivery. Sending a delivery notification when parcel drop-off is imminent allows customers to plan to be home to receive their package, reducing incidences of failed delivery.

Use the right service for each parcel

Different types of customer orders will be suited to different services, depending on characteristics like dimensional weight or contents i.e. hazardous materials. The shipping service you choose can be the difference between not only optimizing freight costs but also whether any accessorial charges are applied.

Using specialist freight carriers for extremely heavy or large packages, for example, reduces large package surcharges because freight shippers are better equipped to manage oversized products compared with other carriers. Using local or regional delivery services can also help to avoid delivery area surcharges, as delivery routes are tailored to specific zip codes.

Shipping method mapping is a great way to map orders containing certain criteria i.e. order value, product type, delivery destination, and speed to specific shipping methods you are using. This saves valuable time allocating orders manually and ensures that they are being shipped using the most appropriate service that reduces accessorial fees.

Pay close attention to surcharge updates

Carriers may update their accessorial charge policies with limited warning, especially ahead of the holiday season or in preparation for the new financial year. Raising accessorial fees by $0.10 or $0.20 might not sound like a lot, but multiplied by hundreds of parcels, this increase can seriously undermine your profit margins. Be sure to regularly check the websites of the carriers you use and subscribe to alerts to stay informed and adapt your shipping strategies accordingly.

Partner with a 3PL

In addition to making shippers eligible for wholesale shipping rates, another upside to partnering with a 3PL is that they can help to identify where accessorial charges are coming from - and come up with strategies to mitigate them.

“At Ryder, we quantify exactly how many and which packages had accessorial charges applied, down to the individual tracking numbers,” says Kim. “This allows us to work with customers to understand what shipment characteristics are causing problems and how to remedy them.”

By leveraging the experience of a 3PL partner like Ryder, businesses can future-proof their shipping strategy with inside advice on what is causing the majority of accessorial charges, enabling them to sustainably reduce shipping costs - from the ground up.