UPS, facing massive volumes akin to the holiday season due to COVID-19’s impact on ecommerce, is imposing surcharges on larger-volume shippers and those sending bulkier items as of May 31 to offset its costs, impacting companies already reeling from the crisis.
Experts agree they expect to see FedEx follow suit shortly with its own set of surcharges, as the so-called duopoly carriers often make these kinds of changes in tandem.
Among the new charges is a 30-cent bump per item for UPS Ground and SurePost shippers whose weekly volume is more than 25,000 parcels greater than the baseline of their average week in February, before COVID-related lockdowns took effect.
UPS is also adding a surcharge of $31.45 for shippers who send more than 500 large packages in a week, defined as having a length by height by width of 130 inches or more. You can see the entire peak surcharge rate card here.
In addition, the carrier is imposing surcharges of between 11 cents and 34 cents per package for inbound international shipments outside of China and Hong Kong. For inbound shipments from those places, the charges will be either 11 cents or 12 cents more than current rates. All new charges are in effect until further notice, UPS said.
“UPS routinely adjusts its commercial terms to reflect changing market conditions, the costs we incur to serve our customers and other factors,” said the company in a statement. “The peak surcharges reflect the current dynamic market conditions and uncertainties caused by the coronavirus, which is impacting available capacity and market demand. These surcharges are designed to balance our network to provide the best possible service for all customers, and have been constructed based on our customers’ unique package volume characteristics.”
Experts understood the rationale that volumes have been exceeding holiday 2019, and many more large items are being ordered online, leading to tens of thousands of new carrier hires and increased overtime pay. Still, the new charges were unexpected, creating an extra cost burden on already challenged retailers.
Jerry Hempstead, a parcel shipping consultant, said even if and when the volumes recede, he doesn’t expect the UPS surcharges to be pulled back.
“I suspect the earnings have not risen for the parcel carriers in line with the increase in volumes, and UPS has made the first move,” Hempstead said. “I don’t think it’s enough. It’s directed at a very few shippers and is not going to solve their volume or (per package) yield problem. I think FedEx may be in worse shape as they had made a prior decision to fire the U.S. Postal Service (for its SmartPost last mile service), although they could always return as needed, but the USPS is also inundated with packages.”
Hempstead said the market will get a better picture of the carriers’ performance when they file their next earnings reports. “We saw April numbers from the USPS and package volumes were at wall-busting numbers,” he said.
Rob Martinez, founder and co-CEO of parcel spend consultants Shipware, provided some cost calculations of the impact of the new UPS charges. For a mid-market company with average volume of 200,000 packages per month in February, increasing to 350,000 currently, the incremental cost would be $105,000 per week. A company shipping 1,000 large packages weekly under the UPS measure would see an additional cost of $31,450 per week.
“Even if a company has a contract concession on a surcharge, like 50% off large packages, it won’t apply here as this is being a called a peak surcharge,” Martinez said. “They’d have to negotiate a peak surcharge concession specific to the increase. We’re in the process of analyzing the financial impact to our clients, but obviously this is going to impact high-volume ecommerce shippers that have increased shipping during COVID-19, especially brand names.”
Chase Flashman, co-founder and CEO of parcel audit and rate reduction technology firm ShipSights, said UPS is penalizing shippers who are doing well in the midst of the COVID-19 pandemic. He said he assumed shippers, who often discover new charges in their invoices, will in most cases pass on the costs to their customers, “affecting that much more folks.”
“Their justification is, we have to support the needs of our customers, and the goal is to ensure businesses are able to meet their shipping needs while demand is increasing for their services,” said Flashman, who worked in sales and international development for UPS until founding ShipSights in 2017. “If want shipments to get to folks, you all have to eat this.” He added that while the charges are going up, service levels in general have been going down due to the crush of ecommerce orders.