Parcel Contracts are Costing More Than You Realize

Shipping costs have been climbing for years, and industry professionals are well aware of it. What's less obvious is how much of that increase is actually avoidable, and how much leverage a shipper (the party paying for the freight) really holds against a carrier such as UPS, FedEx, or USPS.

The pressure is not theoretical. Seasonal demand and peak season surcharges are already rolling out for Q4. What often goes unnoticed is that the general rate increase carriers announce near the end of each year takes that elevated baseline and locks it in as the new standard, turning a “temporary” seasonal surcharge into a permanent cost. That cycle is already underway. 

Very large shippers often have individuals, or entire teams, dedicated to managing this expense full time. Companies without such resources can still make a meaningful impact on their bottom line by following a straightforward approach to reduce this expense. The following is a practical look at what's driving parcel costs upward, how shippers can approach a renegotiation without the benefit of a dedicated logistics team, and why the next several months are especially important.

Why the Timing Matters Right Now

Unfortunately, many shippers treat their parcel contract the way they treat a utility bill: an inevitable cost that shows up regularly and increases over time, rather than the real profit lever that it can be. That assumption can be expensive. Typically, each carrier publishes their own standard tariff once, or sometimes more than once, per year. This is the base rate schedule that applies to virtually every shipper in the country regardless of size. It is the responsibility of each individual shipper to negotiate its own discount off those published rates, and the level of discount secured can vary enormously from one shipper to the next, even among companies of similar size. 

Carriers are generally free to adjust that base tariff, and the fees attached to it, as they see fit. That built-in flexibility is what often makes a strong discount negotiated a few years ago obsolete today.  The carrier can move the baseline that the discount was calculated against, and the discount itself doesn't move with it. This is why active, periodic renegotiation isn't optional. It's the only way to keep freight costs growing in line with the rest of the business rather than quietly outpacing it.

As mentioned, two forces are currently converging: the seasonal surcharges already announced, and the general rate increase major carriers publish near the end of each year. Together, they mean rates are about to increase for nearly every shipper in the country. The only real variable is whether a given company's discount structure and other terms are strong enough to blunt that increase, or whether it flows straight through to the bottom line. Shippers who wait until the increase is already in effect are negotiating from a materially weaker position than those who address their contract terms now, before they lock in.

The “Easy Button” Problem

Here is one of the most common and costly mistakes shippers make, and it usually plays out the same way. As the contract nears its end, a carrier’s sales representative reaches out with a proposed extension, often timed close enough to the renewal date that there is no realistic window left to explore other options. The representative offers “improved” discounting that merely softens the upcoming increases a bit and frames it as “savings”. A busy business leader, with plenty of other priorities and little time to build a competitive case on short notice, accepts the offer because it feels like a win. The contract renews. Shortly thereafter, the cost increases arrive, just slightly smaller than they otherwise would have been, and the pattern repeats.

This is rarely a win. A modest concession off of  a pending increase is not the same as a competitively negotiated rate, and it is not the same as testing what the market would actually offer if given the chance to compete for the business. The two carriers that dominate the market, along with a growing set of regional and alternative carriers, are genuinely competing for volume right now. A shipper that waits for the carrier to initiate the conversation, and then accepts the first offer, never puts that competition to work.

The distinction that matters most is who is driving the process. A shipper that starts the review months before the contract term ends, sets its own timeline, gathers competitive information, and decides what “acceptable” looks like before ever speaking with the carrier is in the driver's seat. A shipper that waits for the carrier's renewal notice to start thinking about any of this is merely a passenger in the process, reacting to a proposal on someone else's schedule and someone else's terms. The single most effective change a shipper can make is starting the process early enough to have real options, rather than starting it when the carrier decides it's time.

What Often Gets Overlooked: Fuel & Accessorials

As a practical matter, the total cost to ship a package is made up of three main components:

• Freight charge (Base rate)

• Accessorials and Fees

• Fuel Surcharge

Most of the attention in a parcel contract goes to the base rate discount, the headline percentage reduction off the published tariff. That's a reasonable place to start, but it's not where the real cost movement happens.

Accessorial charges, the fees layered on top of base rates for things like residential delivery, large packages, address corrections, and delivery area surcharges, typically increase faster than base rates do. Carriers have added new accessorial categories almost every year for the past decade, and existing ones are adjusted more aggressivley and less transparently than the base rate itself.

Fuel surcharges behave similarly. Carriers are quick to point out that these costs track commodity prices, driven by world events and other factors outside their control, but they also periodically adjust the underlying calculation methodology, often in ways that make the surcharge climb faster than the actual price of fuel would justify.

The freight charge itself is not immune to such manipulation. Many packages are billed on dimensional weight rather than actual weight: length, width, and height divided by a number called the “dimensional divisor”, with billing based on whichever weight, actual or dimensional, is greater. Few shippers realize the divisor itself is negotiable, not a fixed industry standard, and that a less favorable one can quietly inflate billed weight across an entire shipping profile. The mechanism isn't static, either. In 2025, FedEx and UPS both revised their dimensional rounding rules, increasing billed weight on a meaningful share of packages and offsetting a large part of the discounts that had been previously negotiated.

Since many contractual terms focus primarily on base rates, and insufficiently on fuel, dimensional weight, and accessorials, a counterintuitive result often occurs. Many contracts include a “freight rate” cap," a negotiated limit on how much the carrier can raise base rates each year, often set at 4 to 5 percent annually. A shipper with that kind of cap in place can still see total cost per package rise closer to 10 percent once fuel, dimensional weight, and accessorials are factored in, since none of those are typically covered by the cap. The “cap” looked meaningful on the day it was signed, providing the illusion of cost predictability. It simply wasn't covering the part of the bill that was moving the most.

Any renegotiation that focuses exclusively on the base rate discount and ignores the dimensional weight terms and accessorial fee schedule is addressing a shrinking share of the actual cost.

Building a Real Position

A few steps put a shipper in a materially stronger position heading into any renewal or renegotiation:

• Establish the real baseline. The relevant number isn't the contracted discount percentage. It's the effective discount after every accessorial, surcharge, and minimum charge is applied. Pulling several months of actual invoices and calculating the true net cost per package by service level usually reveals a meaningful gap between the contracted discount and the real one.

• Bring real competition to the table, not just a quote. A single comparative quote from another carrier is a useful negotiating chip, but it understates what's actually possible. Volume can also be routed across multiple carriers, including regional and alternative national players, based on simple rules: which carrier is most competitive for a given zone, service level, weight band, or delivery type. This isn't a wholesale switch. It's letting carriers compete for volume on an ongoing basis rather than once every contract cycle, and newer carriers looking to expand their reach will often offer extremely competitive pricing to win it.

• Remember the accessorials. A negotiation that stops at the base rate discount, even a strong one, leaves the fastest-moving part of the bill untouched. The terms governing fuel surcharges and accessorial fees deserve the same scrutiny as the headline discount number, not an afterthought once the bigger negotiation is settled.

• Time it deliberately. Negotiating in the weeks before peak season puts a shipper at a disadvantage, since carriers have the least incentive to make concessions when volume is guaranteed. Addressing terms well ahead of the general rate increase, rather than after it takes effect, preserves far more leverage.

  
  

The savings can be substantial. One of our clients, a mid-sized retailer, moved from a single primary carrier arrangement to a multi-carrier model, using a simple set of rules based on size and weight to determine which carrier handled each shipment. Total parcel spend dropped by more than 25 percent, including savings from the original carrier, which sharpened its pricing to retain a share of the business even as the second carrier bid aggressively to win it.

The Bottom Line

All of this can seem like a lot, but in most cases, it reflects the same practices and discipline that built the business in the first place, simply applied to a part of the business that sometimes feels less central. The scrutiny that goes into pricing, vendor negotiations, or inventory management applies here as well. Every dollar saved on parcel spend drops straight to the bottom line, the same as any other cost reduction.  If it has not been competitively addressed for a long time (or ever), the opportunity for a significant move is likely to be present and meaningful.

About the Author: Bill Maroney is a long-time retail executive who launched Freight Think, a small consulting firm that helps retailers and other shippers reduce parcel and freight costs, with Reid Klosowsky in 2023. Prior to Freight Think, Bill was responsible for Vendor Management at Bed Bath & Beyond for many years, including the development and oversight of its Vendor Performance Management effort. Bill welcomes feedback and questions and can be reached at bill.maroney@freightthink.com.

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