Editor's Note: This post has been updated with new links and content.
Original Publication Date: October 26, 2015
This post will explain a fee that UPS and FedEx rolled out a few years ago. As a matter of fact, what they really did was drop a bomb on drop shippers.
But before we get into what that is, let’s discuss the three billing types for sending a package via UPS and FedEx.
3 Billing Types for Sending a Package via UPS & FedEx
The first billing type is prepaid. This means the shipper pays for the package being sent.
Then there's collect, in which the recipient pays for the package being sent.
And then there's third-party, where a third-party person who isn’t the shipper or the receiver pays for the shipping cost.
Now, if you aren’t familiar with drop shipping, here’s an example. If you order a product from an online store, and that store has a manufacturer make that product and ship it straight to you, that store — which never sees the product itself — is a third-party drop shipper.
UPS was the first to roll out a specific fee for third party shipments in 2016, but FedEx followed suit shortly after.
As of now, if you ship a third party shipment with either FedEx or UPS, you'll be required to pay a third-party fee.
What Is the Fee and How Is it Applied?
For UPS, it's 4.5% of the total cost of the shipment. They raised it in 2019, from 2.5 to 4.5%, and that includes the freight, the fuel surcharge, and any accessories charges. It does not include customs and duties and taxes and things like that.
Shippers, however, can stay on top of third-party shipments and make sure that people aren't using their shipping accounts without authorization with the right technology.
On Lojistic’s platform, for example, there is a view option that shows you what shipments are marked with a third-party shipment charge. You can go through the list and see every shipment, the addresses, and the companies involved.
If there's anything that looks like it shouldn't be there, you can report it to your carrier and get it wiped away. A lot of clients have used this option to identify shipments in which their account had been used by somebody else.
This system helps with auditing your internal processes as well. If your own company shipped something, for example, but the data shows that it should have been prepaid, you can instruct your shipping team to ensure that those addresses are prepaid and not a third-party bill.
Negotiating Third-Party Fees With Carriers
Lojistic offers a service that includes negotiated rates and accessories charges. Sometimes these fees can be waived or reduced as part of negotiations.
As we mentioned, both UPS and FedEx have this fee, and UPS’s is 4.5%. They started at 2.5% in 2016, but as of 2019, they raised it to 4.5%. FedEx, on the other hand, has started at 2.5% and has remained at 2.5%.
So if you do a lot of drop shipping business, switching to FedEx could your fee outlays in half.
The FedEx rate can also be used in negotiating fee reductions if, for example, somebody wanted to stay with UPS.
Fee Mitigation and Workarounds for Shippers
First, you can try instructing your shipping team to mark everything as collect. That way you won't incur that cost. They might catch on and say that it was really third-party, but it's worth a shot to see if you can get them without any third-party shipping fees.
Another option, if you tend to ship from a certain vendor a lot, instead of using your account and getting those third-party fees, you can establish a new account with the shipping address at the vendor reference on that account. It's still billed to you and would take care of the fee issue.
For more information on how you can join the thousands of shippers nationwide currently using Lojistic to send cost packing, please visit our website and contact us.