It’s no secret that e-commerce shippers are expected to bear the brunt of UPS Inc.’s (NYSE:UPS) 2021 rate increases. But a detailed analysis of the carrier’s pricing strategy opens a window on how painful those increases might be for customers who are unaware of what lies ahead.

The analysis, prepared by consultancy Transportation Impact and posted on its LinkedIn page Nov. 13, shows that the UPS increases, which take effect Dec. 27, are tilted toward the slower, or “deferred,” services that e-commerce customers tend to favor because they are not as pricey as urgent, time-definite or day-definite services. Examples of the former include UPS’ core ground delivery service and SurePost, a product offered in conjunction with the U.S. Postal Service (USPS). Under SurePost, UPS inducts bulk parcels deep into the postal network for last-mile residential deliveries.

For example, minimum charges for U.S. ground packages will increase in 2021 by 43 cents per package to $8.76, according to the consultancy. That is a $1.19-per-package increase over 2018 levels, the report said. In 2021, the minimum ground charge will have increased at a higher rate than the year before for the fourth consecutive year, Transportation Impact said. 

Ground residential surcharges will increase by 8.54% in 2021 after a relatively modest 3.8% year-over-year rise in 2020, according to the consultancy. Deferred express services will rise, on average, by 6%, well above the 4.9% 2021 general rate increase (GRI) that is largely irrelevant to the actual shipping costs of regular UPS customers. Lightweight parcels, which account for most e-commerce shipments, is the only area where the 2021 deferred express increase is higher than the 2020 increase, according to Transportation Impact.

By contrast, base rate and minimum charge increases on parcels moving in next-day delivery will be significantly lower than they were in 2020, according to the consultancy.

The report highlighted 20 UPS “accessorial” fees, levies that are tacked on to the base rate to reflect the company’s costs of providing additional services beyond the pick-up and delivery. Of the fees, 11 will be increased from 2020 levels, while eight will be reduced. A new “additional handling” fee related to packaging will be imposed, and is set at 7%. All but one of the increases — a delivery area surcharge for air shipments — will be above the 4.9% GRI, according to the consultancy’s calculations.

Another new fee is a $2.99 per-package levy on parcels shipped to more than 9,000 of UPS’ “Access Point” locations operated by partners like CVS Inc., (NYSE:CVS), Michaels Companies, Inc. (NASDAQ:MIK), and Advance Auto Parts, Inc. (NYSE:AAP). Consumers can redirect their packages to access points to pick up packages at a location of their choice. There was no such charge in 2020, the consultancy said. A UPS spokesman said the new fee was not related to the pandemic.

The core narrative of UPS’ 2021 charges is the trend of “shippers’ growing reliance on deferred-delivery services, including the shift of air volume to ground,” the report said. UPS said that it is making positive strides in improving ground delivery transit times and that shippers are noticing the gains, the report said. “The recognition by customers that ground can be a reliable alternative by air is seen as an opportunity by the carrier and (has) shaped many of the cost increases” for 2021,” the report said. 

The array of adjustments is almost entirely due to the surge in e-commerce demand fueled by the COVID-19 pandemic, the consultancy said. UPS’ package mix, which pre-pandemic was nearly evenly split between business-to-consumer (B2C) and business-to-business (B2B), shifted quickly and heavily to B2C as businesses closed and e-commerce became the primary buying channel for confined consumers. The shift increased the volume of lighter-weight and deferred-service level packages flowing through UPS’ system, the consultancy said. 

The same has held true for rival FedEx Corp. (NYSED:FDX), which announced its 2021 adjustments earlier than UPS, and which the consultancy has already analyzed.

Pricing is, in theory, negotiable. Large shippers have historically used their volumes to leverage significant discounts. Small to midsize shippers have less latitude, and will face carrier resistance in negotiating down base rate or surcharge increases. In addition, carriers earlier this year suspended their money-back delivery guarantees after the massive and overnight shift in consumer buying behavior turned their delivery commitments to dust.

Neither FedEx nor UPS has publicly discussed reinstating the guarantees. However, FedEx has told customers that March 2021 would be the earliest for the guarantees to be restored, according to a person familiar with the matter. A FedEx spokesman declined to comment other than to refer to a company communique that the suspensions would remain in place through the peak season.

UPS and FedEx are seeing an extraordinary opportunity to profit amid unprecedented e-commerce volume spikes. As a result, they are forcing large customers, which historically have received huge discounts that have crimped carrier margins, to accept equally large rate increases or find other means of delivery. The carriers have also begun capping the amount of peak-season traffic they will accept from large customers and are imposing peak surcharges as high as $5 per parcel on very big shippers. What’s more, regional parcel carriers and DHL’s E-commerce unit long ago stopped accepting any new U.S. peak business.

The expected avalanche in volumes combined with ultra-tight capacity could result in as many as 7.2 million parcels stranded each day between Black Friday and Christmas Eve, according to estimates from consultancy ShipMatrix that no carrier executive has publicly disputed. Right now, it seems that the post office, which has unmatched delivery resources, is the only entity standing in the way of shippers and complete chaos this holiday.

The current narrative is unlikely to change anytime soon. The chaos of 2020 will likely extend well into 2021, while the supply-demand pendulum will stay firmly in the carriers’ corner. “If you are an e-commerce shipper using UPS Ground or SurePost, you need to pay attention,” Brian Byrd, vice president of operations for Transportation Impact and the report’s author, said in a phone interview on Friday.

Industry watchers have speculated that the extreme seller’s market could go on for two or three years. If that happens, Byrd predicted that other providers will enter the market to capitalize on the trends and, in so doing, drive up capacity and service options. 

Next month, the consultancy will publish a report comparing FedEx’s and UPS’ 2021 pricing strategies, Byrd said. It has already published a report on FedEx’s 2021 adjustments.

Founded in 2008 and based in Emerald Isle, North Carolina, along the state’s Outer Banks peninsula, Transportation Impact was acquired earlier this year by the Jordan Group, a private equity firm with a strong transportation and logistics portfolio.


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