UPS applies peak-season surcharge, but effects not felt across the board

UPS Inc. said today that, for the first time, it will assess a surcharge on peak holiday season deliveries in the U.S. in an effort to recoup the higher costs that come with managing the peak surge.

However, the Atlanta-based company will not impose surcharges on any deliveries made between Dec. 3 and Dec. 16. Surcharges on its core ground deliveries will be assessed between Nov. 19 and Dec. 2, the period that includes the "Black Friday" and "Cyber Monday" shopping days, and during the last week before Christmas Day. The surcharge cycle ends on Dec. 23. In addition, during the last week before Christmas UPS will only assess surcharges on its "Next Day Air," "2nd Day Air," and "3 Day Select" delivery services.

Each package moving under its basic ground delivery service will be assessed a 27-cent surcharge, UPS said. There will be an 81-cent surcharge on each Next Day Air package delivery, and 97-cent-per-piece surcharges on 2nd Day Air and 3 Day Select deliveries. Outsized shipments and shipments weighing more than 150 pounds will be subject to the new peak season surcharge as well as the regular surcharges that come with handling these types of irregular weighted or sized items, UPS said.

The surcharges announced today will apply only to residential deliveries made in the lower 48 states and within Alaska and Hawaii. UPS said it would impose peak surcharges on specific international shipping lanes during certain periods of the year. It did not elaborate.

Glenn Zaccara, a UPS spokesman, declined to disclose how much revenue the surcharges would bring in. In a statement today, the company stressed that most per-package costs will increase only marginally. As an example, the rate on a 5-pound Next Day Air package shipped during peak from Atlanta to Philadelphia will increase by only 1 percent compared with rates during non-peak periods, it said.

Zaccara said the company chose to waive the surcharges during the two-week midpoint of the shipping season because there is usually more capacity during that part of the cycle, and UPS wanted to create an incentive for shippers to shift some of their business away from the busiest periods.

Peak-season surcharges have been a topic of conversation ever since the 2013 holiday shipping season, when UPS, and to a lesser extent its chief rival FedEx Corp., were inundated with last-minute deliveries from e-tailers, notably Amazon.com Inc., the Seattle-based e-tailer and a large UPS customer. Delivery commitments were compromised, leaving consumers furious and UPS with a reputational black eye.

Since that time, UPS has intensified its efforts to effectively balance projected demand with the resources needed to meet it. After a rocky start, the company appears to have achieved an appropriate balance. Yet top executives have made it publicly known for years that peak-season surcharges were under active discussion.

Last holiday season, UPS' average daily volume exceeded 30 million packages on more than half of the available shipping days. The company spends millions of dollars each peak season adding tens of thousands of temporary employees and procuring air and truck capacity, often at higher short-term rates.

So far, Memphis-based FedEx has not followed suit. FedEx executives declined comment, citing a federally mandated quiet period before its fiscal fourth-quarter results are released tomorrow. Historically, one company has followed the other's lead in imposing broad-based service or pricing adjustments such as this.

Analysts who follow the companies have been calling for peak surcharges for some time. One of those analysts, Satish Jindel, who runs a transport consultancy, said today that UPS erred in leaving a two-week gap when no surcharges on ground deliveries will be applied. Jindel called it a missed opportunity, and warned of billing discrepancies that will lead to an increase in customer audits. The move may also lead to demand imbalances should UPS customers shift an inordinate amount of volumes into that two-week period, he said.

A better approach, according to Jindel, would have been to lower the surcharge levels on ground deliveries but apply them to all five weeks of the holiday period.

Jerry Hempstead, a former top parcel-industry executive who runs a consultancy, said many customers have not budgeted for the surcharge, but they will have six months to prepare for it. Retailers that already offer free shipping will need to incorporate the additional charge into the cost of goods, Hempstead said. Web merchants that already assess shipping charges may bump those up a bit more, he added.

Hempstead said some UPS shippers may defect to the U.S. Postal Service, which does not apply peak-season surcharges. However, USPS is not price-competitive at weights above 7 pounds, he said.

Hempstead added that the UPS surcharges may have unintended consequences, as shippers of non-seasonal items such as pharmaceuticals will also be affected.