Yahoo Lifestyle What UPS Rate Hikes Say About Peak Season Demand
UPS came out with its 2024 general rate increase on Friday after fierce rival FedEx announced plans to hike its fees last month.
UPS said the GRI will be 5.9 percent higher next year. America’s biggest parcel carrier also said shippers will pay higher peak season surcharges because of the extra $30 billion going to unionized workers over the next five years.
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GRI applies to UPS’s Ground, Air and International services and will take effect Dec. 26.
While analysts had speculated whether the UPS GRI bump would be higher than FedEx, the rivals seem to be pacing each other. The 5.9 percent hike is less than the record 6.9 percent GRI UPS authorized for 2023, and in line with the 5.9 percent raise in 2022.
“I think this is all about the demand situation and UPS fearing that it will lose more market share if it would go to market with a higher GRI than FedEx,” Jason Miller, interim chairperson, department of supply chain management at Michigan State University’s Eli Broad College of Business, told Sourcing Journal.
UPS lost out on about 1 million packages to the tune $200 million in sales when the Teamsters strike threat spooked shippers into using other carriers. This means the Atlanta-based package giant might be focused on winning back customer confidence instead of worrying about margins in the near term.
Miller told Sourcing Journal the lower demand is reflected in the U.S. Census Bureau’s Q2 2023 Quarterly Services Survey, which calculated that nominal revenue for courier and messenger services declined by 6.4 percent year-over-year.
And when adjusted for sector-specific inflation using the Producer Price Index (PPI) for courier and messenger services, Miller pointed out that inflation-adjusted revenue generated by these firms is just 7 percent above 2019 levels—down from a peak in 2021 of approximately 23 percent above the period three years ago.
Miller cited two other relevant indicators of low demand: e-commerce as a percentage of retail trade sales (excluding motor vehicles/parts and gas stations) has been falling since the 2022 fourth quarter, while air freight imported from Asia to the U.S continues to decline.
“This points towards UPS and FedEx using lower GRI’s given underlying demand for their services is down substantially from last year and, given excess inventories remain in many key customer segments (e.g., apparel wholesale), they do not want to risk losing volumes to other carriers if they increase prices too much,” Miller said.
Aside from the 2024 rates, new demand surcharges for peak season shipping are set to increase in October.
Although current demand surcharges range from 40 cents to 60 cents per package, these fees will range from $1.35 to $7.50 from Oct. 29 through Jan. 13, 2024. These fees apply to qualifying shippers sending packages via UPS Ground Residential, Air Residential and SurePost.
The surcharge’s cost for each affected service depends on how many more packages a customer is shipping compared to their “baseline” average weekly volume from June 4-July 1. If a customer’s average weekly volume from Sept. 3-30 is less than 80 percent of that amount, UPS will use that volume as the baseline instead.
Fees are also put in place for bulky and hard-to-handle packages under three categories: additional handling, large package and over maximum limits. Additional handling surcharges, typically $3.50 per package, will expand to $6.90 per package from Oct. 1-Jan. 13, 2024. Similarly, large package fees will jump to $74.90 in peak season, up from the typical $40. Packages that are over maximum limits—those exceeding 150 pounds—will cost an extra $410 per package. These packages typically don’t carry a fee.
Customers that qualify for the additional handling, large package and over maximum limits surcharges fall under one of three criteria: they’ve been billed for more than 1,000 total packages in any week after February 2020; they’ve been billed for more than 10 combined large packages or packages requiring additional handling in any week after February 2020; or they’ve signed up for a new UPS account after Dec. 31, 2020.
The demand surcharge is structured similarly to FedEx’s, name change and all, as it targets high-volume shippers that see a spike in demand during the peak season. It applies to customers billed for more than 20,000 packages any week after October 2022.
UPS has not specified whether the demand surcharges will be implemented beyond the holiday season, but noted on its website that demand surcharges are “subject to change,” and that demand periods “may be extended or otherwise changed.”
