Analyst: UPS's announced 2010 rate hikes may not tell the tale

UPS Inc.'s announcement Nov. 20 of rate increases for 2010 has understated the actual increases, which in many cases will be higher than the company has publicly disclosed, according to an analysis by a leading parcel consulting firm.

The new rate structure, which takes effect Jan. 4, calls for an average increase of 4.9 percent over 2009 rates on UPS's ground parcel shipments, and an average increase of 6.9 percent on air-express and U.S. export shipments, minus a 2-percent reduction in the fuel surcharges for air and international export shipments, resulting in a net increase of 4.9 percent. The increases apply to UPS's "list" or retail rates. Shippers who use UPS through contracts will generally receive substantial discounts off list prices, depending on the product chosen.

TranzAct Technologies, a consultancy in Elmhurst, Ill., told DC Velocity that list rates will rise by 6.4 percent for the average UPS ground package weighing one to five pounds, and 6.0 percent for the typical package weighing six to 10 pounds. Rates will rise, on average, by 4.9 percent for packages shipped by ground that weigh 11 to 25 pounds, according to the TranzAct analysis.

In addition, list rates on four of UPS's six tiers of air and international products will rise more than the 6.9-percent average increase for air and export deliveries, according to the TranzAct analysis. The largest increase is expected on UPS's next-afternoon delivery product, with an average 8.24-percent increase from 2009 list rates. That is followed by rates for next-day air and second-day air deliveries, with each rising, on average, by 7.9 percent. Rates for packages shipped for second-day morning delivery will increase by 7.58 percent, TranzAct said.

Rates for air shipments delivered by 8 a.m. the next day will increase by 6.64 percent, while rates for packages moving in three-day transit times—known in UPS lingo as "Three-Day Select"—will rise by 6.9 percent, according to the TranzAct analysis.

UPS will also adjust on Jan. 4 its mechanism for calculating fuel surcharges, the first such adjustment the company has made in several years. Without elaborating, UPS said fuel surcharges applied to air and international services will rise more slowly in 2010 than in prior years if applicable fuel prices increase. In addition, if diesel prices fall below $1.75 per gallon, UPS will not apply a fuel surcharge on its ground services. That is a higher threshold than the $1.50 a gallon currently in place.

UPS, the nation's largest transportation company by revenue with nearly $52 billion in 2008 sales, will also roll out several new products in 2010. Among them will be a "day-specific" pickup service where a shipper can arrange a specific day or days for a pickup. Another is called "On-Route Pickup," where a driver will make a pickup at a location each business day while also making deliveries in that area, even if the customer is not receiving any packages. Both services are known as "accessorials" and are subject to charges beyond UPS's billings for regular pickups and deliveries.

The UPS announcement comes two months after its chief rival, FedEx Corp., announced a 5.9-percent increase in 2010 list prices for its air services. FedEx has yet to announce 2010 rates for its ground delivery products. Like UPS's rate hikes, FedEx's changes take effect Jan. 4.