May 10, 2016

Going long with your parcel traffic? FedEx and UPS will want more money

Firms poised to apply special handling fees to a "longer" net of shipments.

By Mark B. Solomon

For ground parcel shippers, it's about to get more expensive to be long.

Within 30 days, any shipment moving on UPS Inc.'s or FedEx Corp.'s domestic ground networks will be charged a $10.50 "additional handling fee" if the longest side of the shipment exceeds 48 inches. Currently, the fee isn't imposed until the length of a parcel's longest side exceeds 60 inches. The long side's absolute maximum length is 108 inches.

At FedEx, the change takes effect June 1. At UPS, it kicks in June 6. The moves to shrink the maximum length that is subject to the surcharge follow policies that took effect Jan. 1 to hike the so-called additional handling fees to $10.50 from $9.

The most recent edict marks the seventh price increase of some type applied by UPS in the past 18 months, and the sixth imposed by FedEx, according to Thomas Andersen, vice president of LJM Consultants, a firm that audits FedEx and UPS invoices for clients and handles contract negotiations with the carriers. Andersen's comments appeared late last week in the industry trade magazine Parcel.

The two firms have a near-monopoly over the business-to-business ground parcel market and a very strong—though not nearly as dominant—position in business-to-consumer deliveries. They have moved in virtual lockstep during the past seven years in imposing rate increases, as well as new accessorial charges—or modifications to existing ones—for services rendered beyond basic pickup and delivery.

Both companies said the recent adjustments are needed to offset the costs of handling irregular-shaped shipments through their ground delivery networks. E-commerce has broadened the ordering bases for millions of companies, among them producers and retailers of large, outsized products that traditionally were sold in stores but can now be ordered online. A growing number cannot be processed through the firms' mechanized systems because they were designed and built to handle smaller, lighter shipments with routine dimensional characteristics. As a result, shipments with a specific combination of dimension, size, and weight require special handling and incur additional costs, the companies said.

Fred Smith, FedEx's founder, chairman, and CEO, told an industry conference last October that in visiting one of the company's ground hubs he was struck by the number of unconventional shipments that had been ordered online. Smith cited kayaks as a prototype of such consignments that were difficult, if not impossible, to run through FedEx's conveyance system. In general, the online availability of so many traditionally store-bought items such as mattresses and desks poses a handling challenge for parcel carriers.

It is unclear how many shipments will be affected by the changes. The types of products that could be exposed include skis, golf clubs, baseball bats, and other commodities that are dimensionally long but not very wide. In a separate e-mail, Andersen of LJM said most shippers will be impacted to some extent, but some in specific industries will be affected more than others. Businesses that designed packaging to comply with the 60-inch length threshold will now need to modify boxes to comply with the 48-inch requirement, he said. "We have several clients that have requested shipping data to help them identify products to eliminate, due to this change," Andersen said.

Jerry Hempstead, who runs a transport consultancy that bears his name, said the revenue from the changes would be relatively incremental. Still, the moves feed what Hempstead called an "addiction" on the carriers' part to satisfying the increasing demands from investors and analysts for new sources of growth.

A balky shipper may initially be able to negotiate prices, terms, and an effective date, Hempstead said. However, at some point the carriers "extract (the fees) from everyone, and laugh all the way to the bank," he said.

Hempstead expects that a year from now the carriers will shrink the applicable surcharge length to 36 inches from 48 inches. In what would be a more significant move, he predicted FedEx and UPS would reduce to 139 each firm's respective "volumetric divisor" used to calculate dimensional pricing on domestic air and ground shipments. Because shippers generally pay the higher of dimensional or actual weight prices, reducing the divisor would be tantamount to a decent-sized rate increase.

After a parcel's cube is calculated by multiplying length, width, and height, it is divided by the volumetric divisor to get the dimensional weight. Under the current divisor formula, a 1-cubic-foot box measuring 1,728 cubic inches would yield dimensional pricing equal to an 11-pound shipment. However, a shipment priced under a lower divisor of 139 would yield pricing equal to a package weighing 12.4 pounds.

The reduction to 139 would bring the domestic divisors in line with each firm's divisor used to price international shipments, Hempstead said.

Editor's Note: An earlier version reported that the changes apply to UPS' U.S.-Canadian ground shipments. It applies only to domestic U.S. shipments. We regret the error.

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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