Dive Brief:
- UPS announced peak surcharges on certain domestic shipments in the U.S. beginning Sunday.
- The surcharges will apply to Ground Residential and SurePost packages if a shipper's volume the prior week was more than 25,000 packages greater than the shipper's average daily volume in February. The surcharge is $0.30 per package.
- UPS will also impose a large parcel surcharge of $31.45 per package. UPS defines large package as one with length plus girth exceeding 130 inches or with length more than 96 inches.
| Service level | Effective date | Surcharge |
|---|---|---|
| UPS Ground Residential | May 31 until further notice | $0.30 per package |
| UPS SurePost | May 31 until further notice | $0.30 per package |
| Large packages (all service levels) | May 31 until further notice | $31.45 per package |
Source: UPS
Dive Insight:
UPS has announced a series of updates to its services and surcharges since the COVID-19 pandemic surged demand for the carrier's services, but this latest peak surcharge announcement from UPS is the first time surcharges will apply to domestic shipments.
The surcharges can add up quickly for e-commerce shippers confronted with exceptionally high orders and volumes during the pandemic.
"Gotta love the surcharge game," Chas Gorham, district sales manager at USPS, wrote on LinkedIn. "So essentially, if you were a residential shipper that averaged 25,000 shipments a week and you started doing 50,000 or more a week, you are now paying [a] minimum of an extra $7,500 a week," he wrote, given the $0.30 per package surcharge for Ground and SurePost.
UPS announced its first coronavirus-related peak surcharges March 20 on airfreight shipments from mainland China, Hong Kong and Europe, citing increased demand for air cargo capacity. Shortly after, UPS and FedEx suspended service guarantees as they anticipated delays and disruption to their networks.
"Prices can be dynamic, just like everything else," outgoing UPS CEO David Abney said on the carrier's earnings call in late April. At the time, UPS was reviewing prices on a customer-by-customer basis.
"This appears to be similar to the approach taken with initial peak surcharges a few years ago, by engaging large customers first, before eventually releasing published peak surcharges to all customers," Nate Skiver, founder of consulting firm LPF Spend Management, wrote on LinkedIn at the time of the April earnings call. "Would not be surprised if this happens by June."
UPS' strategy to impose surcharges on domestic shipments marks a departure from rival carrier FedEx, which to date has announced surcharges on FedEx Express and TNT international shipments. "This surcharge does not apply to domestic shipments," the website states. Instead of domestic surcharges, FedEx has taken the approach of using volume caps with select shippers to manage capacity and costs, Skiver told Supply Chain Dive.
The domestic peak surcharges from UPS take aim at its last-mile business arms, which are typically low margin and have become particularly stressed as of late with stay-at-home orders rerouting supply chains from B2B to B2C. By the end of March, B2C made up 70% of UPS volume, executives said on the April earnings call, adding the trend was extending into April.
Surcharges, while a way for UPS to recoup lost profits, put shippers in a difficult position, Skiver said. He recommended shippers in the short-term negotiate directly with UPS and diversify their carrier base.
The surcharges come after a slight dip in on-time performance for UPS Ground Services, according to data from ShipMatrix emailed to Supply Chain Dive. From March 1 to April 18, UPS' on-time performance was 98.7%. That figure slipped to 96.9% for the period from April 19 to May 9.
The dip in on-time performance was larger for FedEx Ground, however, slipping from 97.7% during the first timeframe to 89.4% in the second timeframe. FedEx's impact is more pronounced because it has in-sourced its SmartPost deliveries, whereas USPS continues to deliver a majority of UPS' SurePost shipments, according to ShipMatrix.
"I would not be surprised to see UPS expand the US domestic peak surcharges to apply in a similar manner to the peak surcharges typically seen during November and December," Skiver said. He said FedEx could follow suit with domestic surcharges, or it could forgo them as a competitive strategy against UPS.
