UPS Inc. (NYSE:UPS) said it will increase rates by 24 cents on all parcels moving under its SurePost parcel-induction product with the U.S. Postal Service (USPS), effective Oct. 18.
The per-parcel increase matches a 24-cent peak-season holiday surcharge imposed by USPS, the first time the agency has ever levied surcharges during the holiday season. The USPS charges will be levied on large commercial customers like UPS, which under the SurePost program dumps massive volumes deep into the postal infrastructure for last-mile residential deliveries. However, large postal users are expected to pass on the USPS increases in much greater magnitude, thus creating profit centers for that traffic.
UPS’ announcement, which appeared last week as a short announcement on its website, somewhat follows the lead of rival FedEx Corp. (NYSE:FDX), which announced that all shipments tendered through its postal-induction product, called SmartPost, would be subject to a peak-season surcharge. Parcel-delivery experts said then that it was just a matter of time before UPS came to market with price adjustments on its own product.
The effective date of the UPS increase comes nearly a month before its peak holiday surcharges take effect. UPS surcharges will apply to shippers tendering a combination of weekly air and ground residential volumes, as well as SurePost. FedEx’s surcharges apply to shippers tendering residential and commercial volumes moving by air and ground. SmartPost surcharges will be broken out separately.
The FedEx and UPS surcharges will be targeted at high-volume shippers. They are expected to be hefty, ranging between $1 and $5 per parcel largely depending on the weekly volumes tendered during the peak periods for each.
The per-piece surcharges will increase as a shipper tenders more weekly volumes to the carriers. Which shippers are eligible for the surcharges, and the amount they will pay, depend on a multiple of factors. One of the key factors is the quantity of a shipper’s weekly peak volumes relative to its activity during February.
For example, a FedEx customer will be eligible for surcharges if it tenders 35,000 weekly volumes during peak via residential and commercial services. However, the surcharges will only be imposed on residential volumes.