Change or pay up: UPS aims to modify shipper behavior through new measures

Sometimes it takes a whack to the wallet to change customer behavior. Several UPS Inc. policies that go into effect June 4 appear designed to do just that.

On that date, the Atlanta-based transport and logistics giant will impose a fee for auditing bills that result in shipping charge corrections because the shipment's dimensions conflicted with those calculated by the shipper. Those shipments would be subject to higher prices based on their dimensions instead of actual weight.

Fees will be assessed if the value of corrections in an invoice week exceeds $5, UPS said in a service announcement earlier this month. The fee will be the higher of either $1 for each package subject to a shipping charge correction, or 6 percent of the total amount of shipping charge corrections during an applicable invoicing period, UPS said. It will waive the fee if an audit finds the company's calculations match the shipper's.

In addition, UPS will raise surcharges by more than 40 percent on the handling of packages that exceed the company's maximum dimensional requirements. Surcharges for handling oversized pallets will also rise by 40 percent. In both instances, the surcharges will climb to $650 from $500, UPS said.

The surcharge program, known inside the company as "Overmax," has been in place since 2000. The surcharge amount has been raised through the years to account for more outsized shipments that have been moving through UPS' small-package network due to elevated e-commerce activity. To keep such merchandise out of its network, UPS, the nation's largest transportation company, has reportedly been looking to team up with truckload carriers that will deliver heavy goods like furniture that are ordered online. Under UPS policy, a parcel will not be accepted for standard transportation if it has any one of three characteristics: an actual weight of more than 150 pounds, length that exceeds 108 inches, or 165 inches of combined length and girth combined. Packages that violate any of those rules and are found in the UPS small-package system are subject to an "Over Maximum Limits" surcharge in addition to other applicable charges.

In its service announcement, UPS said it wants to encourage its shippers to use the company's less-than-truckload (LTL) network for these items rather than its small-package infrastructure. The company's small-package network was never designed to efficiently handle big and heavy goods, and it requires what the company called "extraordinary special handling" at high labor expense to process them. A parcel industry executive who asked for anonymity said UPS has effectively drawn a line in the sand with its shippers as to what types of shipments will move through its system without exorbitant surcharges attached to them.

The company did not publicly state the rationale behind the new audit fee. Melissa Runge, vice president of analytical solutions for Spend Management Experts, a parcel consultancy that helps high-volume UPS shippers control their shipping costs, said the fee is designed to influence shippers' behavior by hitting them in the pocketbook, as well as to compensate UPS for the cost of the audits. For example, one way for a shipper to circumvent a dispute over dimensions is to use the same packaging that clearly fits within UPS' dimensional requirements, Runge said. That might be exactly what UPS wants, she added.

However, UPS can audit any shipment it chooses, and its decision on the dimensions of each will carry the day unless the shipper wants to go through the hassle of disputing the company's findings, Runge said. In addition, thousands of UPS shipments a day push the dimensional envelope and would be subject to audits and unfavorable decisions for the shipper.

Runge estimated that about one-third of her company's clients will be affected by the various changes, and on average it will add about a six-figure equivalent to their current shipping costs.

The executive who sought anonymity said the audit fee will add insult to the injury already being meted out through higher dimensional pricing. The brunt of the pain may be borne by unsophisticated shippers who repeatedly use UPS' web site to book pickups, the executive said. "Most average shippers won't think to put the dimensions in," the executive said. "They get the sticker shock later (from the dimensional pricing); now they will get a $1 surcharge."

Jerry Hempstead, a long-time parcel executive who runs his own firm, said the changes will amount to little if anything for UPS. Regarding the volumes subject to the higher handling surcharges, Hempstead said it involves a "minuscule number of transactions. And we are talking about shipments that should never find their way into the UPS parcel network."

It is believed that Memphis-based FedEx Corp., UPS' chief rival, has yet to implement similar measures. The two companies often move in lockstep on rate and other pricing actions.