UPS' SurePost customers to get hit with holiday surcharge

Users of UPS Inc.'s popular "SurePost" product, which it operates in conjunction with the U.S. Postal Service, will face a new 36-cent charge for each residential package delivered during part of the upcoming peak holiday shipping season

Under SurePost, UPS inducts packages deep into the postal system, which serves every U.S. address, for last-mile deliveries to residences. Atlanta-based UPS benefits from the USPS service by avoiding the time and expense of sending drivers and equipment to countless residential addresses. SurePost is priced cheaply for UPS' customers, which in this case are mostly merchant shippers. The low prices reflect the incremental costs passed on by USPS, which accepts UPS packages only after they've been moved most of the way to their destination, and whose letter carriers must serve all addresses anyway.

Earlier this week, UPS announced that, for the first time, it would impose surcharges on deliveries of peak-season holiday traffic. However, no surcharges will be levied during the two-week holiday midpoint from Dec. 3 to Dec. 16. Surcharges on air and "3-Day Select" services will apply only during the last week of Christmas. Surcharges on UPS ground deliveries will be imposed from Nov. 19 to Dec. 2, and during the week before the Christmas holiday.

UPS has mulled the imposition of peak-season surcharges for some time to offset escalating costs that only occur during the holiday period. The company moved a record 712 million packages last peak season.

UPS' chief rival, Memphis-based FedEx Corp., has not announced whether it will follow UPS' lead on peak surcharges, although it is weighing its pricing options. The companies tend to act in tandem on initiatives of this type, with one typically following the other. FedEx has a similar venture with USPS called "SmartPost."

UPS does not break out SurePost volumes for any period. For financial reporting purposes, SurePost traffic is included in UPS' domestic package segment, which is the largest of the company's three operating units. SurePost volumes are believed to be growing at a double-digit pace year over year. However, it is a relatively low revenue producer for the company.

Jerry Hempstead, a former top U.S. parcel executive and now a consultant, said the SurePost surcharge would be "huge" for UPS if it sticks throughout the holiday period. The company has done an effective job over the years in motivating shippers to migrate their residential deliveries from traditional "UPS Ground" to SurePost, Hempstead said in an e-mail.