For reasons that are easily understood, the most unpopular acronym in the world of logistics and transportation is “PSS”. As anyone familiar with shipping terminology knows, “Peak Season Surcharge” is the name given to price increases placed on certain transportation services during periods of high demand. Of course, here in the U.S. peak season is associated with the run-up to the Holidays that begins in early fall and continues until just after New Year’s.
Whereas the overall definition of Peak Season Surcharge is self-explanatory, the details behind the true meaning of PSS depend on factors like mode of transport, service type and service level within a given mode. Found in transportation areas as diverse as small parcel, ocean container shipping and air freight, it is very important for shippers to understand how a given PSS is levied, how long a surcharge will be in effect and most importantly, how these additional costs will impact a transportation budget.
Particularly true for companies that ship both domestically and internationally and that use multiple modes of transportation, the process of budgeting and managing surcharges that only come into play at the end of the year can be a difficult task. Given the complexities behind Peak Season Surcharges, this blog is dedicated to pointing where they’re most often applied, how they’re structured from a cost perspective, and how companies can budget for expenses that may or may not come to fruition.
The first thing we’ll say about PSSs is that a Peak Season Surcharge should never be confused with what’s known as a "GRI”, or a “General Rate Increase”. By definition, a PSS is temporary, which means that as soon as peak season subsides, so does the surcharge. A GRI, on the other hand, is a permanent rate increase that can be implemented at any time of year as a reflection of market conditions that are of a more permanent nature.
It should also be pointed out that a PSS should not be mixed up with other fees such as a “Fuel Surcharge” (FSC) or a “Security Surcharge” (SSC). As the names indicate, these are charges that are separate from a PSS and that are charged in addition to a Peak Season Surcharge. Found in different modes of transport, FSC is charged in trucking, air freight, and ocean freight (known as “Bunker Surcharge” for ocean freight), and an SSC is most predominant in air freight.
With the above clarifications made, the growth in e-commerce has caused PSSs to be mostly associated with B2B and B2C deliveries. Although it’s true that PSSs levied by the integrators (DHL, FedEx, and UPS) get all the headlines, they’re quite common in other modes of transport, too. The key distinction to be made across transport types is the unit of measure upon which charges are based. In the case of ocean freight for example, a PSS will be by container size, whereas for international air freight, a surcharge is expressed on a per kilo basis.
Given the different ways that carriers structure a PSS, it is critical for shippers to have a handle on units of measure, as well as factors like dollar amounts, the presence of any volume thresholds (i.e. when a PSS kicks in) and expected duration of the surcharge. Without knowledge of these variables, it will be very difficult for any shipper to budget and/or accrue for expenses during the latter months of a calendar year.
As noted, how shippers budget for a PSS is a function of the type of transportation service they use and the volumes that they ship at different periods throughout the year. Within that broad framework, it must be acknowledged that e-commerce shippers face a substantial financial burden from PSSs specific to residential deliveries. And even though DHL, FedEx and UPS make a valiant effort to explain surcharges on their respective websites, they can still be confusing.
One thing that is easy to understand about residential delivery surcharges is that they’re calculated on a per-package basis. So, theoretically, if a PSS is $2.00 per package on a given service, that should be simple to calculate. Unfortunately, with residential delivery service types like, “Ground Residential”, “Next-Day Air Residential” and “All Other Air Residential”, as well as volume thresholds that trigger the application of a PSS, one needs PhD in Calculus to figure out what all this stuff means!
To elaborate on the above point further, each integrator creates its own volume threshold that’s based on shipping quantities from a non-peak, previous month. Driven by the total volumes from ALL service types, if an integrator establishes a threshold of 10,000 packages per week and if a shipper’s overall volume exceeds that amount, then the PSS is invoked. It should also be noted that a PSS can be “progressive”, meaning that as a shipper’s volume grows and exceeds the threshold more and more, the higher the per-package PSS becomes.
Clearly a complex exercise from a cost perspective, residential delivery surcharges are further complicated by fees such as, “Special Handling” and “Over-Maximum Shipments”. Whether it’s a charge for a carton that’s too heavy, or if a box exceeds dimensional limits, these charges are often unknown to the shipper until freight moves. Taken in conjunction with volume-based PSSs across multiple service types, these surcharges make it hard to know the cost of a shipment until an invoice is received.
Needless to say, creating a reliable transportation budget for all modes of transport during a twelve-month period is not easy. Also, when one considers that most PSSs are likely to be invoked only in the fourth quarter, accurate budgeting is next to impossible. In recognition of this problem, there are measures that can be taken by shippers to devise a reasonable estimate of what those end-of-year additional costs will be. Here are a few suggestions that might help shippers with their budgeting efforts.
The trouble with all Peak Season Surcharges is that they’re not only expensive but inherently difficult to calculate prior to goods being moved. Whether it’s an inbound ocean container carrying imported goods for Black Friday, or a PSS on residential Next-Day Air shipments, every mode of transport and service level has its fair share of nuances and confusing calculations.
Given the above challenge, shippers need to get a “peek” into Peak Season Surcharges long before they’re implemented. Depending on a company’s shipping profile, that means understanding units of measure and volumes by transport mode, service types and service levels, and most importantly, the math behind each PSS. From there, shippers can use their own best practices along with the suggestions found in this blog to create budgets that are not only reliable but that can be adjusted through well-timed accruals.