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UPS has sent a strong signal to large-volume B2C shippers with the announcement of hefty surcharges for residential deliveries that rise with their parcel numbers.
In addition, it is raising the bar for large shippers which sell items that are outsize or require additional handling.
The integrator is to introduce peak surcharges for volume shippers on 15 November, applying to customers that ship in excess of 25,000 packages in a week.
They are based on the discrepancy with the customers’ volumes in February, before the Covid-19 shutdowns in the US.
For customers that use UPS SurePost (where the final-mile delivery is carried out by the US Postal Service) or UPS Ground Residential services, surcharges are $1 per package, if the weekly volume in the peak season is 110%-200% of their volume in February, rising to $2 per package, if the volume has increased to 200%-300% of February volume, and $3 for a 300%+ increase in volume.
For the integrator’s residential deliveries involving air transport, the surcharge ranges from $2 per package (for 110%-200% of February volume) to $4 (more than 300% of what they moved in February).
In addition, UPS will levy surcharges of $5 per package for shipments that require additional handling, $50 for large shipments and a whopping $250 for shipments that exceed its maximum limit. These charges apply to customers with more than 1,000 such shipments in a week, and will kick in on 4 October, running through 16 January.
These surcharges replace those UPS introduced in May, while surcharges for international shipments remain at the May levels until further notice.
For large shippers, the new regime means significantly higher costs. Pundits and shipping consultants have pointed out that these increases are hitting retailers hard. Their margins are already being eroded from the migration of in-store to online sales.
“A lot of retailers are already stretched on margin. They can’t absorb increases in transport costs and are going to have to raise their e-commerce prices,” said Dean Maciuba, director, consulting services, at Logistics Trends & Insights.
The hikes won’t be happily received by retailers, coming days after UPS posted strong results for the second quarter; with revenue up 13.5% and adjusted net income reaching $1.9bn, nearly 9% higher than a year ago.
However, one key metric was down, Mr Maciuba pointed out.
“Revenue per piece was down 4%. That’s huge,” he noted, adding that the integrator had raised rates 5% for this year.
“They have to raise revenue per package,” he said.
Carol Tomé, the new UPS chief executive, called the second-quarter results “better-than-expected”, but in the earnings call promised an aggressive cost reduction programme, said Mr Maciuba.
With the costs involved and the low margins, e-commerce is the natural target for this , he added.
UPS did not mention its largest customer, but Mr Maciuba reckons the surcharges also apply to Amazon and sees them as a signal that UPS is unwilling to make the necessary investment to accommodate a large increase in the volume of low-yielding e-commerce parcels.
Presumably, the integrator will give large customers discounts, but even a large reduction should still lift the yield of this traffic significantly, Mr Maciuba believes.
Observers have noted that the peak season surcharges run longer than last year, and Mr Maciuba doubts they will disappear come mid-January.
“I think they’re going to extend further,” he said.