Numbers Deceiving In UPS Rate Hikes

Nov 22, 2011 2:04 AM  By

UPS released its rate increases for 2012, including a net increase of 4.9% for UPS Ground packages and a net increase of 4.9% on all UPS Air services and U.S.-origin international shipments.

The rate increase for UPS Ground shipments is based on a 5.9% increase in the base rate, less a 1 percentage point reduction to the index-based ground fuel surcharge. The rate increase for UPS Air and international services shipments is based on a 6.9% increase in the base rate, less a 2 percentage point reduction to the index-based air and international fuel surcharge.

Doug Caldwell, sales director with AFMS Logistics Management Group, says of the increases: “With these increases, it’s getting more difficult to maintain free shipping, just as more customers are demanding it.”

Although the increases average 4.9%, the actual increases are considerably higher for lighter weight shipments, Caldwell says. For instance, the 1 to 5-pound ground rates for the continental U.S. rose nearly 8% — which are heavily used by B-to-C shippers.

“The hardest hit will be shippers of lighter weight packages,” Caldwell says. Although not yet announced, Caldwell believes FedEx will match UPS on the domestic ground rates through 70 pounds.

Caldwell thinks it’s a good time for companies to review shipping charges and mitigation strategies now, and not wait until they go into effect on Jan. 2, 2012.

As in past years, Caldwell says, the accessorial rate increases are somewhat higher than the base rate increases, with some accessorials seeing 10% jumps. Surcharges for residential delivery are up 9%, while the delivery area surcharge is up 8.1% for commercial and 9.1% for residential, and in extended areas 8.3%.

Gerard Hempstead, president of shipping consultancy Hempstead Consulting, says this year’s UPS rate increases are “all about how averages can be deceptive.

UPS has announced that the ground tariff will go up 5.9% while most ground shipments weigh 10 pounds or less. “It’s hard to spot the cell that has the 5.9% increase,” Hempstead says. “The highest I can see is for a 3-pound package going to a zone 2 and that’s going up 8.81%.”

In almost every case a shipper is constrained by the minimum charge and the minimum will be $5.49 — a 6.2% jump in every case. “The progression of increases of the minimum has been staggering, up over 30% in five years,” Hempstead says. “What is lacking in this year’s announcement is a major gotcha, as shippers last year reeled with the staggering increase in cost associated with the change in the method of calculating dimensional weight.”

Jim Tierney is a senior writer for Multichannel Merchant. You can connect with him on Twitter (TierneyMCM) and LinkedIn, or call him at 203-358-4265.