UPS Plans Hefty Holiday Fees for Large Shippers -- 2nd Update
August 07 2020 - 5:44PM
Dow Jones News
By Paul Ziobro
United Parcel Service Inc. plans to impose hefty fees on large
shippers during the holiday season, reflecting the added complexity
and cost of an expected crush of online orders amid the coronavirus
pandemic.
The fees will test the ability of large retailers such as
Amazon.com Inc. and Target Corp. to offset costs during a holiday
season when skittish shoppers will avoid crowded stores and rely
more on online orders.
UPS on Friday said the fees could total as much as $3 a package
for ground shipments and other lower-priced shipping options and up
to $4 a package for air shipments bound for residences.
That is significantly higher than the last time UPS instituted
additional fees during a peak holiday season, in 2018. Surcharges
then reached 28 cents on ground shipments and up to 99 cents for
some air shipments.
The newly planned fees come as UPS as well as rival FedEx Corp.
try to offset significantly higher costs from the influx of
packages flowing through their network.
They have already imposed additional fees on large shippers, and
have raised prices on some customers by double-digit rates.
Shares of both companies got a boost Friday. Investors have been
hoping delivery companies could squeeze higher prices out of
customers after years of investments to expand and modernize their
delivery systems. The pandemic has allowed them to capitalize on
that much sooner than expected.
Shares in UPS rose 7.9% to a fresh all-time closing high of
$156.90, while FedEx shares rose 6.5% to $183.53.
In an internal document circulated before the surcharges were
disclosed, UPS told its sales team that the fees would offset
higher costs to hire new workers and to secure additional air,
truck and rail capacity.
"These surcharges help protect our network and ensure UPS is
compensated appropriately for additional costs incurred to maintain
our high-quality service," according to the document, which was
viewed by The Wall Street Journal.
The new charges come after UPS's new chief executive, Carol
Tomé, recently said the company would take a more aggressive
approach to raising prices on large retailers to manage
capacity.
"While retailers may squawk at price increases that come their
way, large retailers have a way to spread that across and nobody
knows," Ms. Tomé, who previously served as finance chief at Home
Depot Inc., said on an earnings call last week.
Shipping consultants expected the holiday surcharges to be
steeper than before, but were surprised by how high UPS is
going.
"This is devastating to retailers," said John Haber, CEO of the
supply chain consultant Spend Management Experts Inc. "It's getting
to a point where I'm starting to consider it gouging."
Retailers including Target have been revamping supply chains in
recent years to give themselves more options to fulfill online
orders. The Minneapolis-based retailer ships more than 80% of
online orders from its stores, a spokesman said, reducing the
distance, cost and time it takes to fulfill an order.
While Target is a big UPS customer, it also uses a number of
other national and local carriers. "We can choose the best option
for every box," the Target spokesman said.
A FedEx spokeswoman declined to comment. Company executives have
said they are evaluating plans for added fees during the peak
season. "This is part of the new normal," FedEx Chief Marketing
Officer Brie Carere said in late June.
In the past, the company hasn't imposed surcharges on
residential deliveries during the holidays and instead worked
closely with shippers to manage expected shipping volume during the
busiest times. It has charged more during peak periods for bulky
parcels.
UPS said its surcharges will apply from mid-November until
mid-January. They are designed to apply only to customers who ship
more than 25,000 packages a week, with the fees rising based on how
much higher the weekly shipping volume is compared to the
customer's average weekly shipping volume in February. That month
is seen as a baseline because it was before the pandemic upended
buying and shipping patterns.
The starting fees are $1 for ground shipments and $2 for air.
The company said it would also include surcharges of $5 on
shipments that require additional handling and $50 for large
items.
A UPS spokesman said the surcharges reflect the available
capacity to handle and ship packages.
UPS is encouraging customers to adjust their operations to avoid
the brunt of the fees. According to the internal document, some of
those steps include shifting promotions during the holiday season
so volume doesn't spike too much during the busiest times such as
around Thanksgiving, and enticing shoppers to pick up orders in
stores or to have packages delivered to access points like dry
cleaners, drugstores or other local businesses.
"These strategies help UPS decrease disruptions to our network,
maintain a steadier stream of volume throughout peak season and may
alleviate financial effects of the surcharges for our customers,"
according to the document.
--
Sarah Nassauer contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
August 07, 2020 17:29 ET (21:29 GMT)
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