June 29, 2017

Amazon to avoid UPS peak surcharges by flexing massive shipment volumes

It's "United States of Amazon" as company lives in its own pricing orbit.

By Mark B. Solomon

Amazon.com Inc. will likely be exempt from UPS Inc.'s new surcharges on peak-season deliveries, another sign that Amazon's massive holiday volumes gives it influence that no other shipper can wield, the president of an e-tailer of home and garden products said yesterday.

Jeffrey Gornstein, president of Newark, N.J.-based Comfort House, told the SMC3 annual summer conference in Palm Beach, Fla., that Amazon often procures shipping rates at cost or even below cost. Those rates get passed on to Amazon's merchant customers in the form of ultra-low parcel and less-than-truckload (LTL) rates. It also gives the Seattle-based giant the latitude to offer a service like "Prime," where users receive virtually unlimited two-day deliveries for a $99 annual fee.

Amazon may not be the only big shipper that receives a waiver from the UPS surcharge. Chad Caparelli, director of product management—operations and technology for Radial Inc., a King of Prussia, Pa.-based third-party logistics (3PL) provider that specializes in e-fulfillment issues, said at the conference that UPS announced the surcharge months in advance to give it time to negotiate waivers with its bigger customers. That position has been echoed by parcel consultants such as Rob Martinez, president and CEO of Shipware, LLC.

Amazon will be affected less than many big shippers by the UPS surcharge, which starts Nov. 19 and runs through Dec. 23, with a gap between Dec. 2 and 16 when no surcharges will be levied. Amazon will move a large chunk of peak traffic on its own network, which consists of dozens of air freighters and an armada of ground vehicles of different types. It also moves more than 60 percent of its parcels annually with the U.S. Postal Service, which doesn't impose surcharges.

UPS' chief rival, FedEx Corp., has not announced a similar charge, and the scuttlebutt at the conference is that it may not. Generally, the two companies act in lockstep on initiatives like these. Satish Jindel, who runs his own transport consultancy, said at the conference that FedEx could face a tsunami of packages from shippers and retailers looking to avoid the UPS surcharge. Such a scenario, Jindel said, could result in service problems if FedEx isn't properly prepared for it.

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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