Broker's corner: Meeting UPS management – a breath of fresh air
US parcel shippers are getting hit with more price hikes, this time on the domestic front.
After a round of additional levies on international parcel shipments in April, FedEx and UPS are now implementing domestic surcharges at short notice.
The pair moved in their customary two-step: UPS jumped first, announcing surcharges from 31 May; FedEx followed on 3 June with similar charges, effective from 8 June.
“UPS does it. If FedEx doesn’t match it, something is wrong in the world,” said John Haber, CEO of Spend Management, a consultancy on logistics spend, based in Atlanta.
UPS led the way with a 30 cent levy per parcel in its Ground Residential and SurePost services. (The latter uses the US Postal Service for final-mile delivery.) In addition, there is a surcharge of $31.45 per shipment on parcels with a length in excess of 96 inches or length plus girth exceeding 130 inches.
FedEx followed suit with surcharges of 40 cents for parcels shipped through SmartPost (its equivalent to SurePost) and a peak residential delivery surcharge of 30 cents per package. Like UPS, it also introduced a surcharge on outsize parcels, with dimensional limits identical, but FedEx charges slightly less, at $30 per outsize package.
The new surcharges mainly target large shippers, as the levies on regular parcels have volume thresholds that spare SME shippers.
FedEx’s peak residential charge applies to customers that ship 40,000 parcels in any given week on the company’s residential delivery services and whose volume in that week is over 120% of their average weekly volume from February.
The new UPS surcharges hit shippers of regular size parcels that have increased their volume by more than 25,000 packages since February. Its levy on outsize packages kicks in with the 501st monthly shipment, Mr Haber noted.
“There are not many shippers that fit these two categories,” he said, adding that the surge in package volume from large retailers has been the biggest factor in the rise of residential deliveries for the integrators. UPS saw B2C traffic shoot up from about half its volume to 70% in the first quarter.
The rise of B2C volumes has put downward pressure on the integrators’ margins and overwhelmed their networks, creating additional cost pressures.
“As the impact of the virus continues to generate a surge in residential deliveries and has also generated a surge in oversize, hard-to-handle packages, we have experienced increased operating costs across out network,” FedEx said in its announcement of the new charges.
Mr Haber does not question the validity of the argument, but he criticised the timing – particularly with FedEx, which gave notice of the new charges on 3 June. With the levies coming into effect on 8 June, shippers were effectively given less than three working days to respond.
“They should have given people a warning,” he said. “There is no time for people to make contingency plans.”
Shippers can try to negotiate with FedEx; they can shift volume to an alternative provider if they have one, or they can try to find one. Each of these options takes time and is unlikely to avert the initial hit, which can be substantial, he said.
“We have clients who ship one million packages a month,” he added.
For many large retail companies, this blow comes at a difficult time. Brick-and-mortar retailers have been hammered by the pandemic, with e-commerce their current lifeline in many cases, explained Mr Haber, adding that he expects that pain to continue.
“I think we’re going to see prices continue to increase,” he warned. “DHL eCommerce is going to look at it; Pitney Bowes is going is going to look at it.”
One trend that may alleviate the upward pressure on parcel rates is the increased interest from large forwarders and 3PLs in adding parcel shipping capabilities to their portfolio.
“Most 3PLs don’t have capabilities in the parcel business, and it’s the fastest-growing sector. We’re going to see a lot of consolidation,” Mr Haber predicted.