Home (Delivery) Field Advantage
When discussing the merits of FedExâs Home Delivery service versus residential delivery via FedEx Ground, Saturday delivery is oft mentioned â and for good reason. Being the weekend, more addressees will be home from work which presumably prevents problems posed by perpetually pesky porch pirates (Iâm saying this 3 times fast as Iâm writing this). But thereâs a commonly unrecognized economic advantage. Iâll elaborate in a moment, but first I need to address the elephant in the room - When I separately referenced âresidential FedEx Groundâ and âFedEx Home Deliveryâ, a percentage of you thought, âWait, thereâs a difference?â
Indeed.
Home Delivery vs. FedEx Ground
FedEx Home Delivery, as the name implies, is the ground business unit dedicated to residential deliveries. FedEx Ground, on the other hand, is the business unit intended for commercial deliveries while also servicing residential addresses for packages tendered to it instead of Home Delivery. Both use the same rate chart (weight & zone matrix) to determine the shipping cost, and for the most part, the accessorial charges are identicalâŠexcept for the surcharges uniquely associated with a residential delivery (e.g. residential surcharge, delivery area surcharge).To illustrate, the published Residential Surcharge for Home Delivery shipments (as of Sept. 18, 2018) is $3.60, but itâs $4.15 for FedEx Ground. Similarly, the Delivery Area Surcharge for Home Delivery is $3.45, whereas the residential Delivery Area Surcharge for FedEx Ground is $4.00. The Extended Delivery Area Surcharge for both is $4.40, but there is still a difference as you will see shortly. Letâs use the example of a 5-pound residential shipment destined to Zone 6. It also happens that the recipientâs zip code is subject to a Delivery Area Surcharge. The below reflect published (non-discounted) rates.
The Home Delivery rate is $1.10 lower than its Ground counterpart (5.5%). The lower rate will also be subject to a lower fuel surcharge which isnât reflected above.
Why The Difference?
Simple - commercial deliveries are more profitable than residential. Residential deliveries have a lower delivery density (average number of packages per delivery) and more mileage between deliveries which increases labor costs, and by extension, the cost per package. FedEx Ground is priced and marketed as a primarily commercial delivery solution. When a FedEx Ground driver has to âbreak routeâ from a commercial territory to service a residential, this disrupts the pricing model for this service as well as its operational efficiency. By pricing the residential-related surcharges for FedEx Ground at a premium, FedEx hopes to push more volume into the Home Delivery network.But the aforementioned example doesnât illustrate the full magnitude of the difference. Letâs add some realism to the picture by including discounts into the equation. Using the same package as before (Zone 6, 5 pounds), weâll discount the transport charge for Home Delivery by 20%. For added realism (although not always the case), weâll place the FedEx Ground discount slightly higher at 25%. Residential Surcharge and Delivery Area Surcharge discounts are also 25%. To change things slightly, the destination zip is subject to the Extended Delivery Area Surcharge ($4.40 for both Ground and Home Delivery as previously noted).
Time out, Matthews! You forgot to apply the surcharge discounts to the FedEx Ground package!
Youâre right. I didnât. Thatâs because the discounts only apply to packages shipped as Home Delivery.
No way!
Way. Go check your FedEx agreement. Itâs cool. Iâll waitâŠ
Aside from the 1% of you who can call me a liar (thereâs always exceptions), youâll observe that adjacent to âName of Surchargeâ column in the ground discount section of your FedEx agreement, thereâs a column that reads âApplicationâ (or âApplies Toâ in some versions). Next to Residential Charge (and corresponding residential Delivery Area Surcharges), youâll see âHome Delivery USâ. Unless youâre one of the exceptions, you wonât find âGround USâ next to these surcharges. And if you shipped the above package, you paid almost $2.00 (11.2%) more to ship it via FedEx Ground. In a recent case study on which we consulted, the shipperâs total spend was inflated by almost 7% as a result of how the surcharge discounts are applied. For a company with spend measured in millions, this adds up to a several hundred-thousand-dollar penalty.
The Solution?
As is often the case, the answer is simple, but the solution might not be. Manifesting FedEx residential shipments as Home Delivery will result in a lower shipping cost, but this requires foreknowledge of the recipientâs residential status. This isnât always obvious with so many home businesses nowadays (home businesses are treated as residential deliveries). For those using FedExâs shipping system, turning on the address validation function will identify the vast majority of any that are residential. This can add a step depending on your set-up, but may be cost-justified. If this isnât an option, a study can determine if defaulting to Home Delivery instead of Ground makes sense. Not a perfect solution, but in the absence of perfect informationâŠWhat About UPS?
Residential discount application is unlikely to be the deciding factor in a carrier decision, but ought to be a considered and quantified before making a switch. For those currently using UPS for such shipments and considering a change to FedEx, itâs worth noting that UPS doesnât have an "offside" penalty. UPS uses a single delivery network for commercial and residential, and they donât charge a premium based on how the shipment was manifested. Incorrectly manifested residential shipments simply appear as a correction on the invoice and are rerated with their respective discounts applied. No penalty is assessed, but with UPSâs recent implementation of a Shipping Charge Correction Audit Fee resulting from incorrect bill weight, it might only be a matter of time before one is.Home Delivery isn't going to be the most cost effective option in every situation. A full evaluation of your shipping characteristics and carrier agreements will help in that determination. Due to the number of service level available and surcharges imposed, carrier agreements can be understandably complex. I have come crossed paths with a scary number of carrier reps who failed to grasp the nuances of their own agreements. Youâd be forgiven for missing some of them as well. Residential surcharge application is one that is commonly overlooked or misunderstood. Hopefully by shining those Friday Night Lights on the subject, weâve prevented a few fumbles.
For a complementary assessment of how such surcharges and discounts are being applied to your companyâs shipping, please feel free to reach out to us on our Contact page.