The biggest reason that transportation and shipping carrier invoices can be wildly more expensive than your invoice is because of accessorial fees and variable surcharges. It can be tough to challenge accessorial fees on an invoice, but understanding what fees and surcharges you might see, what industry standards are (vs. fees made up by a specific vendor) and the circumstances in which they are charged will help you better forecast the real cost of moving around your e-commerce goods. Although difficult, it's extremely important for founders and executives at small- to medium-size e-commerce companies in particular to understand accessorial fees and surcharges, even if your role isn't technically operations, logistics or supply chain - because these costs will so fundamentally affect your ability to be profitable. After costs of goods sold, transportation and shipping is one of, if not the largest, expenses for e-commerce companies.
Sometimes these are on a transportation quote (though perhaps not your contract) because the fees are variable based on the moment, but will be on every invoice. A good example of this is fuel surcharges. Others aren’t on a quote, and will only show up on your invoices, because the fee is specific to a particular location (residential? rural?), shipment/package characteristics (oversize? hazardous? valuable?) or problem that occurs during the transport.
UPS and Fedex call many of these costs “surcharges” rather than fees. Both of these companies also publicly publish their fee schedules, and alert customers ahead of time to expected increases. This is important to know because many third-party vendors will attempt to mark up the surcharges further, without ever having mentioned doing so in the original sales conversations.
The number of fees is numerous and it’s important to understand which are most applicable to your business and you can expect to be a part of your final shipping bills. On UPS and Fedex, for example:
If your end user customers tend to live in rural areas, you may often see a Delivery Area Surcharge (DAS) or Extended Delivery Area Surcharge (EAS or EDAS) applied to a specific shipment. This is determined based on the delivery zip code. These rates are negotiable if you’re negotiating your own shipping contract.
If you ship heavy items, such as a 30-lb. bag of dog food, you would see a huge spike in your shipping costs if a customer orders two 30-lb. bags and you tried to ship them together in one shipment, because an Additional Handling Surcharge (AHS) kicks in at 50 lbs. (Without a discount, on FedEx, that’s $25 on top of the other shipping charges.)
There are also additional oversize handling charges for very heavy packages (over 150 lbs.) or that exceed 108” in length or 165” in girth (if you tape-measured the entire circumference of the package, that’s how you get the girth - or 2x length + 2x height).
There are fees for handling hazardous goods, or frozen packages that use dry ice.
Peak surcharges are assessed to shipments during very busy periods, such as the holidays, or basically all of 2020 and 2021 during the COVID-19 pandemic.
Accessorial fees also apply to LTL/FTL transportation bills, and LCL/FCL/import invoices. Common LTL/FTL accessorial fees include:
Liftgate - This is a fee for delivery of commercial goods to a location without a loading dock. Trucks will need liftgates to lower pallets down onto the ground, which can then be moved with a forklift or pallet jack.
Reweight and Reclassification - The costs of shipping LTL are based on shipment weight, dimension and freight classification (classification is basically what’s in the shipment - see FedEx’s freight classification tool for help). If you get the classification wrong, resulting in incorrect billing, you will see a fee for fixing it (in addition to the changes to the freight costs.)
Inside Pickup or Drop-Off - If a driver has to go into a place of business to pick up or drop off a shipment, you’ll be charged this fee for the additional time the driver spent doing so.
Fuel surcharge (sometimes called diesel surcharge)
Metro pickup/delivery - Drivers delivering or picking up freight in metro areas are often stuck in traffic or are forced to navigate streets that are very difficult to maneuver large trucks in. This fee covers the additional time.
Extra labor/lumper - If the delivery driver has to assist with loading or unloading, this fee can be assessed.
On import invoices, there are also many accessorial fees, but two in particular can make invoices that are much higher than the original quotes, sometimes many times the value of the container itself. They are both penalties for a party holding onto a shipping container longer than expected and are delineated by whether the container is within a terminal or not. These fees are charged by the shipping line, who owns the containers.
Demurrage: This fee relates to the length of time a container is inside a terminal after a shipping carrier has unloaded it from a vessel. A certain number of free days are allowed (usually three to five days), and then daily fees begin accruing. They go up as days pass. It can be caused by any number of things, including congestion inside the terminal or problems with customs.
Detention: This fee is for the time when the container is outside the terminal. For imports, this is the length of time it takes to transport the container to the freight’s destination, unload the freight and then return the empty container to the carrier. There are a set number of free days and then fees begin accruing, just like demurrage.
The circumstances that result in demurrage or detention are often outside the control of the owner of the inventory, but that does not get you off the hook for paying these fees. The party responsible for paying these fees is established in a shipment's Bill of Lading, also known as the "contract of carriage" and the legal document that explains the roles and responsibilities of the three entities involved in a shipment - the shipper, the carrier and the consignee. Typically, the consignee (also known as the importer of record for international shipment, and usually the ultimate receiver of the inventory being shipped) is who is held responsible for the charges. Know that while demurrage and detention charges are real charges, you should not be seeing them on most of your invoices, even now with port congestion and imports into the US at a high. If you are working with a freight forwarder or service and you are seeing demurrage and detention charges show up on your invoices regularly, particularly without explanation or chances to correct situations that might have caused them, you should stop using that service.
These are just a few of the many fees that can be assessed by transportation companies. Understanding what fees you are likely to incur and ways to minimize those fees is important to maintaining the profitability of your e-commerce business. If you are having any trouble getting a handle on your transportation invoices, think an audit would be helpful or you are seeing demurrage and detention regularly appear on your import invoices, contact Ship Simply for help.