November 28, 2011

UPS rate hikes: more than meets the eye?

Consultant says ground parcel rate increases could well exceed UPS's stated average.

By Mark B. Solomon

UPS Inc.'s recently announced 2012 tariff rate increases on its core ground parcel business may underestimate the magnitude of the rate hikes that will actually hit on Jan. 2, according to an analysis from a leading parcel consulting firm.

UPS said Nov. 18 that it would raise non-contract rates on ground parcel, domestic air, and U.S.-originating international services by a "net" amount of 4.9 percent, after factoring in reductions in the applicable fuel surcharge. The Atlanta-based transportation logistics giant said its base rate increase of 5.9 percent would be adjusted downward by one percentage point after incorporating a one-percentage-point reduction in the applicable ground fuel surcharge.

However, Hempstead Consulting, an Orlando, Fla.-based firm run by parcel industry veteran Jerry Hempstead, said an analysis of rates for parcels weighing between one and 20 pounds and shipped across virtually all of the country shows much more pronounced increases than the average announced by UPS. With few exceptions, the rate increases will be well in excess of 7.5 percent, according to the analysis. In some instances, the increases will be pushing 9 percent.

For example, UPS will raise rates by more than 8 percent on shipments weighing between two and 10 pounds and moving between 300 and 1,000 miles, according to the Hempstead study. The increases will be somewhat less on shipments of the same weight range moving beyond 1,000 miles, the analysis found.

Officials at UPS were unavailable to comment at press time.

Hempstead, who spent decades in top sales and operational positions at the former Airborne Express and then DHL Express, acknowledged that many UPS shippers have contracts with the carrier and are awarded discounts that result in much lower package rates. He added, however, that virtually every UPS customer is subject to what is known as a "minimum charge" for each package, and that those charges are rising at a clip greater than the total average charge of 5.9 percent.

The 2012 minimum charge of $5.49 is more than 6 percent higher than the 2011 charge of $5.17 per package, and is a significant jump from the 2008 minimum of $4.20 per package, according to Hempstead data.

Analysts who follow UPS said the annual tariff rate increases have little real-world significance because the formula assumes that a customer's shipment is equally distributed across each weight class and each "zone," lingo for geographic regions of the United States. The United States is divided into eight zones.

Hempstead said only those shippers with equal weight and distance distribution would pay the announced tariff rate hike. "But the reality is that shipments are not equally distributed," said Hempstead, who calls UPS's calculations "mathemagic."

Douglas O. Kahl, executive consultant at TranzAct Technologies, a transport consultancy in Elmhurst, Ill., said no UPS shipper should use the published tariffs as a beacon to guide their annual parcel spending decisions. "It really goes to show that shippers can't budget off an announced average, nor can they use a median," said Kahl. "They need to take a look at their particular book of business and understand the actual increases that apply to their unique distribution pattern."

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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