News / Customers will accept 'double-whammy' of peak surcharges, reckons UPS CEO

UPS is first out of the gates in announcing surcharges for the coming peak season – and its plans are ominous for shippers.

The integrator’s surcharges significantly exceed peak 2023 levels: it has introduced a second demand surcharge for customers that ship over 20,000 packages in a week, which ranges from $1.50-$8.25, on top of the basic demand surcharge of between $0.25 and $2.

For additional handling, customers pay between $7.95 and $9.25, up from $6.90 last year, while charges for large packages rose from $74.90 to between $84.75 and $99.

The double-whammy in demand surcharges is likely the heaviest hit on customers’ wallets, according to commentators.

During the second quarter earnings call, when the surcharges were announced, one analyst expressed surprise at the magnitude, but UPS CEO Carol Tomé said it was justified by a shorter holiday shopping window this year (owing to Thanksgiving coming as late as 28 November) and anticipated high volumes.

In addition to the volumes from the US Postal Service air cargo contract, which kicks in this autumn, UPS is seeing rising traffic from new large e-commerce shippers, widely believed to be Temu and Shein.

Ms Tomé expressed confidence that the market would swallow these surcharges.

In recent months, talk has been more about heavy discounting as parcel carriers tried to adapt to a drastic shift from premium to deferred delivery options, which has hurt their margins.

Parcel delivery firm Maergo, which provided one- to three-day parcel delivery across the US through contracts with surface carriers and all major US airlines, recently ceased operations, which staff and observers attributed to fierce pricing competition in the parcel sector. The integrators have reportedly engaged in some aggressive discounting to shore up their business.

UPS stock dropped 12% after the Q2 earnings release, which showed a 30.1% slump in operating profit on lower revenue and forced management to scale down its guidance for the year. A major factor in this has been the flood of low-margin e-commerce.

“UPS is grappling with a surge in volumes from new e-commerce customers leveraging its SurePost service,” said CFO Brian Dykes during the earnings call.

It remains to be seen how the UPS network will cope with the torrent of e-commerce, but its c-suite has expressed confidence that it can manage.

Meanwhile, FedEx has not revealed its peak season surcharges yet, but there is little doubt that they will be rising, as the company boosts capacity. During its last earnings call, chief customer officer Brie Carere said business growth pointed to “an amazing peak, where we do have to expand capacity”.

UPS and FedEx usually move in lockstep when it comes to rate and surcharge hikes. In April, both added a number of areas in the US to a list of sectors with higher delivery charges and the following month saw them raise fuel surcharges, amid protests that they were higher than the fuel price.

Parcel shipping intelligence platform Reveel calculated that the 6.9% general rate increase UPS and FedEx implemented on 1 January 2023 meant that spend last year for average businesses would actually rise 10.2% for UPS customers and 12.8% for those using FedEx.

This year, the general rate rise of 5.9 that kicked in on 1 January actually translates, for average customers, into 8.17% higher spending on FedEx and 7.72% more for UPS clients.