Proliferation of parcel delivery surcharges drives up shipping rates

Extra fees for parcel shipping were the main contributor to higher-than-expected rates during the fourth quarter last year and rates are expected to rise again in 2026, according to a quarterly report from AFS Logistics and TD Cowen investment bank released on Wednesday.

The ground parcel rate per package was up 34% above the 2018 baseline during the peak delivery season. The record high was driven by a combination of increased package volumes and accessorial charges, with the average surcharge assessed by carriers increasing 13% from the third quarter to the fourth quarter, the TD Cowen/AFS Freight Index showed.

Key reasons for the higher charges were a major increase in residential shipments, which also drove up residential delivery surcharges, and carriers like FedEx and UPS introducing for the peak season a “blanket” demand surcharge despite forecasts for muted demand growth. Data from ShipMatrix this week estimated that parcel volumes for the Big Three parcel carriers, including the U.S. Postal Service, were up a modest 5% year over year during the December peak period.

The blanket policy represents a major shift from previous demand charges that more precisely targeted delivery costs like volume surges, large packages and additional handling requirements.

Add-on fees are typically applied to cover the costs associated with providing additional services that require extra labor, specialized equipment, or extend beyond standard transportation and delivery efforts. With competition from many startup carriers, no courier faced an influx of shipments that stressed their systems.

Large parcel carriers are trying to make up for slower revenue growth with surcharges as they look to deemphasize less profitable delivery segments, such as residential e-commerce delivery, analysts say. The widespread use of surcharges risks driving retailers to use cheaper, alternative carriers.

Ground carriers, for example, raised fuel surcharges about 1% even as the on-highway diesel fuel price declined about 1.5% quarter over quarter. On a year-over-year basis, fuel surcharges grew 26% while tracked diesel prices only increased 4.7%. After holding off on fuel surcharge changes for five months, the carriers have implemented adjustments for the new year, the TD Cowen/AFS report said.

Ground parcel rates this year are projected to rise again due to general rate increases (GRI), which include hikes in base rates and surcharges, but also a new rating logic for certain package dimensions. FedEx and UPS implemented a 5.9% GRI for 2026 and their rates and fees are closely aligned. Although FedEx is lower in many surcharge categories, such as for certain delivery areas, the difference is usually less than 1%, according to the TD Cowen/AFS Freight Index.

The index is expected to reach 38.9% above the baseline in the first quarter — up 5.4% year over year and 3.6% sequentially, though the pace of growth may moderate as seasonal impacts normalize, according to the report.

“Record-high rates do not spell good news for shippers, but there is still room for pricing concessions if shippers know where to look and what buttons to push,” said Mingshu Bates, chief analytics officer and president of parcel at AFS Logistics,” in a news release. “After stalling over the last two quarters, discounting resumed an upward trend at the end of 2025. While not indicative of a return to the loose market of a couple years ago, it underlines the point that carriers are willing to make some concessions to secure strategically valuable volume.”

In the express parcel sector, higher fourth-quarter rates were attributed to higher average billed weight, in addition to demand surcharges and increased residential deliveries.

The sharp increase in average billed weight during 2025 corresponds with carriers

enforcing a 40-pound minimum billable weight for packages qualifying for the Additional Handling – Dimension surcharge. For example, if a package weighs 10 pounds but is subject to additional handling, its billed weight is 40 pounds regardless of its actual weight. Express rates are also projected to get a lift from general rate increases this quarter, reaching 7.6% above the January 2018 baseline, up from 5% in the fourth quarter of 2025.

The TD Cowen/AFS Freight Index pulls freight data from more than 1,800 clients that collectively spend $39 billion for transportation each year.

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