UPS has raised the fuel surcharge that it adds to the shipping fee online retailers pay, matching a similar increase competitor FedEx announced earlier this month. UPS also told web retailers to allow an extra day for delivery in the last few days before Christmas, hoping to encourage them to avoid making promises to last-minute shoppers UPS can’t fulfill.
At current rates, the fuel surcharge index will go up from 4.50% to 5.25%, UPS announced last week. That matches the fuel surcharge rate increase FedEx announced recently, which also takes effect Nov. 2, just as the holiday shopping season is getting into full swing.
Though fuel prices have been falling, they have not been falling as fast as the revenue UPS derives from its fuel surcharge, a UPS spokesman says. He says the index takes into account a variety of factors, including the number of parcels UPS delivers to residential customers, largely goods they ordered online. “As the percentage of packages delivered on behalf of e-commerce customers increases, we have more stops and that takes more fuel, and therefore we have to adjust accordingly,” the spokesman says.
The increase is small on any package, though it will add up for online retailers that ship many parcels. For example, if the base UPS shipping fee on a package is $6, the current surcharge would bring it up to $6.27. As of Nov. 2, that would go up to $6.32, an increase of 0.8%. FedEx will also implement a 0.75% increase to its fuel surcharge Nov. 2, but its ground surcharge rate will go from 3.50% to 4.25%.
In announcing the rate increases, UPS also gave explicit warnings to e-retailers to expect some deliveries to take a day longer during the holiday period. The carrier said from Nov. 23 to Dec. 30 “a limited number of UPS Ground and UPS Standard” shipments that normally take three or more days will require an additional day. In addition, all UPS second-day air and 3-day Select packages shipped on Dec. 21 will take an extra day, with the second-day air parcels delivered on Dec. 24 and the 3-day shipments delivered the day after Christmas.
UPS is trying to make clear to online retailers to expect delays compared to normal delivery service because of its high package volume, which increases to an average of 28 million U.S. parcels per day from Thanksgiving to Christmas from an average of 14 million per day at other times of the year. “We want to make sure everyone understands how our network will operate during that period of time so we can ensure there are no disappointments,” he said. He adds that e-retailers can avoid disappointing shoppers by not setting their pre-Christmas cutoff dates so late that UPS can’t get the packages to consumers in time for the holiday.
UPS accepted blame following the 2013 holiday season for a large number of packages arriving after Christmas and took steps last year to avoid a repetition. Among the steps UPS took was to pick up and deliver packages in most areas the day after Thanksgiving. UPS will do that again this year.
UPS also announced last week an average increase in ground delivery charges of 4.9% that takes effect Dec. 28, again matching the increase FedEx previously announced. There will also be a new fee of 2.5% when a retailer uses the account of a larger entity to gain more favorable rates. That would include when an online marketplace makes its lower, negotiated rates with UPS available to sellers. “We’re attempting to be compensated for the additional overhead required to manage those third-party arrangements,” the UPS spokesman says.
That increase will not affect eBay sellers who print their UPS labels through their PayPal accounts, says an eBay spokeswoman. “This is because each seller technically has their own UPS account number when printing labels through PayPal, so we are not in a third-party billing situation. The seller pays UPS directly through their individual account,” she says.
Amazon.com Inc. did not respond immediately to a request for comment on whether sellers on Amazon would be affected.
However, it could affect smaller online retailers that charge their shipments to the accounts of larger companies that have negotiated lower rates based on volume, says Ken Wood, of LJM, a freight invoice auditing and consulting firm. The larger shippers benefit from such deals by getting more volume and thus more leverage with UPS and FedEx; the smaller firms enjoy the larger firms’ discounts, which can run up to 50-60% off list rates for ground shipments and 70-75% off air delivery rates, Wood says.
In such scenarios, the company paying UPS will now face an increase of 2.5% of the total shipping charge, including the base rate, fuel surcharge and extra “accessorial” fees for such things as address corrections and delivery confirmations. “I think 2.5% is a significant number,” Wood says.
This 2.5% increase also would apply to online retailers that take orders from consumers and have suppliers drop-ship the products to shoppers, sources says.
A likely example of how UPS would benefit from this added fee is where a large retailer, such as Home Depot, takes an order for a ceiling fan online and hands that off to a ceiling fan distributor to send the fan directly to the consumer, says Marc Wulfraat, president of logistics consulting firm MWPVL International. The distributor might bill the UPS charge to Home Depot’s account, and get the lower rate that such a large retailer can negotiate from a shipping carrier. “In effect UPS is saying to Home Depot, you can’t hand off your lower negotiated rate to these little guys who are shipping on your behalf,” Wulfraat says.
The rate increases are par for the course, one consultant says. “Retailers are faced each year with an increase in fees from both UPS and FedEx,” says Walt Blum of FitForCommerce, which specializes in advising online retailers on technology. “This is not something new and the amount of the increase is typically 4 to 6%. The new third-party fee is just that, another fee the retailer will need to absorb.”
UPS also announced a variety of other increases in its rates, including hiking the fee from $57.50 to $110 for oversized items that wind up delivered by UPS’ small-package service. This likely will affect few online retailers that sell large merchandise, as they have contracts for delivery through the UPS freight service, designed to handle larger items. This increase, the spokesman says, applies to relatively few items that wind up in the small-package network “when they shouldn’t be.” These packages are either over 150 pounds or exceed 108 inches in length or a total of 165 inches in length and girth.
UPS is listed as the shipping carrier for 413 retailers in the Top 1000, which ranks North America’s retailers by their online sales, and FedEx for 307, according to Top500Guide.com.
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