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UPS


United Parcel Service, Inc. (NYSE:UPSC) recently announced a new 27 cent surcharge on all U.S. ground shipments to homes between Nov. 19 and Dec. 2 and from Dec. 17 – 23.

The surcharge could have wide-ranging impact on retailers and other shippers this coming holiday season.

The idea is to discourage shipping during those periods or help cover the cost of extra personnel, trucks and airplanes needed to cover delivery. During the Dec. 17 – 23 last week rush, UPS says it will also levy an additional $0.81 fee for next day air delivery and $0.97 for 2 or 3-day ground delivery.

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Crunch Time

During the period immediately preceding Christmas, UPS handles daily volume of about 30 million deliveries. The volume approximates 19 million packages a day the rest of the year. According to eMarketer, U.S. retail e-commerce sales will go up an additional 15.8% this holiday season. That’s on top of 7.8% last holiday season.

To the benefit of UPS, retailers are already trying to get customers to pick up more orders in the store. The surcharge will also help those retailers by encouraging people to “ship-to-store” to save money. Retailers also benefit when customers come in to the store to pick up merchandise and end up buying additional products while in the store.

A Trend In The Making

The notion of having customers who generate extra costs during the busy holiday season pay for those costs is behind the UPS move. According to Satish Jindel, founder of SJ Consulting Group in Sewickley, Pennsylvania, FedEx Corp. (NYSE:FDXC) will likely follow the lead of UPS and charge extra during its busiest time. So far FedEx has declined to comment.

Jindel noted that UPS should have adopted this approach in 2014 when the company failed to deliver thousands of packages before Christmas. According to Jindel and others the PR fallout was much worse than the pushback that might have resulted from customers angry about a surcharge.

Bearing The Cost

The new charges will not likely be borne by large companies that forge their own contracts with UPS. Other package senders are expected to bear the brunt of the new fees. Customers may also have to pay more if e-commerce retailers try to pass along the fees via higher shipping and handling charges.

Over the past 2 years UPS has hired 95,000 seasonal employees during the holidays. In addition, holiday packages are generally larger and heavier than at other times during the year.

That Last Mile Problem

Shippers like UPS and FedEx have the same issues as retailers in covering the cost of the “last mile” associated with putting a package in the hands of the customer. Packages delivered to business addresses cost less because orders can be combined.

UPS has already been working closely with retailers to manage both the surge during the holidays and the “last mile” problems that plague any company involved in logistics. To that end both UPS and FedEx have also spent billions of dollars upgrading their networks.

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Others Potentially Affected

The UPS surcharges will also affect Wal-Mart Stores Inc. (NYSE:WMTC) and Macy’s Inc., (NYSE:MC), both of whom have been ramping up their e-commerce presence in an effort to compensate for a lack of foot traffic in stores.

Naturally, Amazon.com Inc. (NASDAQ:AMZNC) and others that rely on UPS and FedEx to handle shipments will also be touched. Retailers will have to ask themselves whether to raise shipping prices – likely against consumer wishes – or spread holiday deals to other times that do not directly conflict with surcharge time period.



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