Residential Delivery vs. Commercial Delivery: What Is the Difference?

The delivery cost can depend on various factors such as the size and weight of the package, the distance it has to travel, and even the type of address (residential or commercial). What is the difference between residential and commercial delivery, and which one is cheaper?

In the most basic sense of the term, residential delivery, also known as home delivery, means that items are delivered to a home, and commercial delivery means that items are delivered to a business address. Basically, if someone lives on the property, it’s treated as a residential address. However, in reality it’s a little more nuanced than that; shipping companies may have different approaches to classifying an address as residential or commercial.

Some shipping companies base their classification of addresses on areas they are located in. For example, if there are a lot of stores, restaurants, and other businesses in an area, it can be designated as commercial, and the addresses of private residences located in the area are treated as commercial addresses. Some shipping companies even treat multi-story apartment buildings as commercial properties. On the other hand, a business based in a residential area may be identified as a residential address.

Another approach is based on whether or not the property is used for commercial activities. For example, if the recipient of a package runs a business out of their house, their address can be classified as commercial even though the house is situated in a residential area.

Finally, some shipping companies rely on government designation of commercial and residential areas. For example, if the state or federal government has designated an area as an industry zone, properties located in this area will be classified as commercial even if they serve as private residences.

Delivery to residential addresses is more costly for shipping companies than delivery to commercial addresses because of the higher cost of last-mile delivery. In shipping and logistics, the term “last mile” refers to the last leg of a shipment’s journey to the addressee, i.e. its transportation from the shipping company’s hub to the final destination. According to statistics, the cost of last mile delivery can constitute up to 50% of the total delivery price.

Delivery to residential addresses is more costly because residential areas are typically more spread out, which means that drivers need more time and more gas to deliver each package addressed to a residential address. Residential delivery also adds more wear and tear to vehicles. Commercial addresses, on the other hand, are usually situated in dense urban areas, and sometimes carriers end up delivering multiple packages to the same address (for example, when the packages are addressed to several businesses that share an office building).

So, we’ve established that residential delivery is more costly for shipping carriers, but do they pass these additional costs on to their customers? Well, this depends on the carrier. For example, the United States Postal Service (USPS) operates under a universal service obligation, which means that it is obliged to provide a baseline level of services to every resident of the United States. Due to this, the USPS does not have residential surcharges.

Private carriers like FedEx and UPS, however, are another matter. For example, UPS applies an additional charge of $3.70 per shipment (as of 2023) for each residential delivery. It should be noted that UPS defines a residential delivery as a delivery made to a home, including a business operating out of a home.

Are there any ways to avoid residential surcharges charged by UPS? Businesses that ship non-urgent orders via UPS can use UPS SurePost, a hybrid service where the USPS is responsible for the last leg of delivery, or ship to UPS Access Points. However, neither of the options is available to individuals.

And now, let’s sum everything up. Residential delivery is more costly for shipping carriers than commercial delivery, but some carriers recoup these additional costs by applying residential delivery surcharges, while others don’t. When you need to ship a package to a residential address, you should figure out whether your shipping carrier of choice has residential delivery surcharges and, if the answer is yes, whether the address you’re shipping to is classified as residential or commercial by the carrier.