October 26, 2017

UPS to hike tariff rates 4.9 percent, shrink dimensional price divisor on 1-cubic-foot parcels

Rate hikes to take effect Christmas Eve; accessorial charges will also increase.

By Mark B. Solomon

Transport and logistics giant UPS Inc. said yesterday that it will raise U.S. tariff rates by 4.9 percent, effective Dec. 24, and that it will change the way it applies dimensional pricing—rates based on a parcel's dimensions rather than its weight—on all shipments measuring 1 cubic foot or less, meaning higher rates for many of those shipments.

The new rates will apply to UPS shipping services within and between the U.S., Canada, and Puerto Rico, the Atlanta-based company said. Memphis-based rival FedEx Corp. last month announced a 4.9 percent increase on U.S. tariff rates, effective Jan. 1. UPS will make no change to its current fuel surcharge levels, a company spokesman said.

FedEx and UPS calculate a package's dimensions by multiplying its length, width, and height in cubic inches and dividing the total by a "divisor" of either 139 or 166. Except for UPS' 1-cubic-foot shipments, where the divisor is still set at 166, both carriers use 139. The lower the divisor, the more expensive it is to ship items with outsized cubic dimensions. For example, a parcel measuring 3 cubic feet—or 5,184 cubic inches—and divided by 166 would yield a dimensional weight equal to a 31-pound shipment. With a divisor of 139, the dimensional weight would be equal to a shipment weighing more than 37 pounds.

The big problem for shippers is both companies rate a shipment based on the larger of the dimensional or actual weight. Thus, a lightweight package could cost a shipper the equivalent of a parcel 10 times its actual weight. Many e-commerce shipments fall within the 1-cubic-foot measurement, though it is difficult to quantify the number of shipments that do so.

The companies say dimensional pricing is necessary to properly compensate them for handling lightweight and bulky packages that occupy disproportionate amounts of space aboard an aircraft or ground vehicle. As e-commerce volumes continue to grow, the companies have said they handle a larger proportion of packages with those characteristics, and can no longer price all of them at their actual weight.

A growing number of larger and heavier items are being ordered online as manufacturers and retailers make more stock-keeping units (SKUs) available via websites and mobile devices. In an effort to offset the higher costs of handling these items, UPS announced a series of increases in its shipping and handling charges. For example, a package exceeding 96 inches in length will be subject to a "large package" charge, effective Dec. 24. Starting July 8, 2018, packages weighing more than 70 pounds will be hit with a $19 "additional handling" charge. Also on that date, the charge for a so-called large package delivered to a residential address will increase to $90 from $80, UPS said. The charge on commercial deliveries will remain at $80.

UPS defines a "large" package as either one whose combined length and girth—2 times the height plus 2 times the width—exceeds 130 inches, or a package whose longest side is more than 96 inches. Either criterion meets the definition, UPS said.

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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