UPS Adds New Peak Surcharge Pain for Shippers

UPS driver feature

Ahead of the upcoming holiday season with its expected surge beyond the “perpetual peak” we’ve been seeing since March of last year, UPS is again issuing surcharges across its services, hitting major shippers particularly hard in a tiered system based on volume.

The costly increases are sure to send large shippers scrambling for alternatives, not many of which are available, as they look ahead to Q4 and plan for capacity. FedEx and the U.S. Postal Service have their own network constraints, and regional carriers are already close to capacity as well.

With one retail earnings call after another bemoaning the bottom-line impact of rising transportation costs, many companies are looking to create greater incentives for things like curbside and in-store pickup that build density and cut down the huge expense of residential delivery.

“(UPS and FedEx) have been doing this for the last year, implementing massive rates and saying, take it or leave it,” said John Haber, founder and CEO of consultancy Spend Management Experts. “A lot of companies are telling us of 25%-30% increases, on top of $100 million in transportation spend, and they just don’t have it in the budget. It’s a nightmare, carriers regularly running out of capacity already and it’s not even July. This may be the worst peak season ever.”

As happened last year, the new surcharges run between Oct. 31 and Jan. 15, for shippers tendering more than 25,000 packages to UPS during any week since February 2020, when the COVID-19 lockdowns led to massive increases in ecommerce shipping. The pricing bands are based on percentage of package volume over and above February 2020 from 110% to 500%-plus.

For shippers using UPS Ground or UPS SurePost, the hybrid service that inducts into the USPS for final mile delivery, the surcharge starts at $1.15 per package for shippers at 110% to 200% of February volume, going up to $5.15 per package if they’re at 500% or above.

For UPS air residential deliveries, the rates go from $2.15 per package for volumes between 110% and 200% of February 2020, up to $6.15 per package at the highest tier of 500% or above.

Packages that are oversized or require special handling will see a two-stage surcharge hike. For special handling, the first increase runs from July 4 to Oct. 2, going from the current $3 per package to $3.50, then again up to $6 per package from Oct. 3 to Jan. 15, doubling the current rate.

For large packages, the rate jumps from $31.45 per package to $40 per package from July 4 to Oct. 2, then up again to $60 per package from Oct. 3 to Jan. 15. In both cases, the pricing is designed to keep more of these larger cube items out of the clogged network.

Bruce Strahan, a partner at operations consultancy Argon & Co., said the pricing surges from both UPS and FedEx are pushing many more shippers into the arms of the regional carriers. “At the same time, they’re reconsidering where they position inventory and fulfillment to more effectively feed into the regional carrier networks,” he said.

Rob Martinez, the founder and co-CEO of parcel spend management firm Shipware, noted how UPS is starting this fall’s surcharges two weeks earlier than in 2020. This likely anticipates the volume surge starting sooner as shippers work to pull some demand forward through adjusting holiday promotional calendars.

“Most shippers will absorb increases of 4% to 15% over last year’s peak surcharges,” Martinez said. “But those shippers with the greatest ecommerce growth over pre-pandemic levels, based on February 2020 volumes, will see their 2021 peak residential surcharges increasing as much as 72%, and oversized packages by up to 20%.”

Haber noted how UPS CEO Carol Tome has emphasized the company’s growing focus on more profitable SMB shippers.

“UPS is going after SMBs, they keep saying it over and over, and we see it with their pricing,” he said. “They want those higher growth, much more profitable customers, and with their capacity limits they can pick and choose. It’s all about profit and shareholder return, and (Tome) is doing a pretty good job of it.”