UPS to Levy Holiday Surcharges to Offset eCommerce Costs
Last week, UPS announced they would introduce holiday surcharges in the U.S. for residential deliveries during the peak holiday season.
- Do you need a business bank account for your online business? Have a look at our review of the five best bank accounts for sellers, some of which are free with no minimum balance or deposits.
- AI can change your entire social media game today. Learn how you can save time writing engaging content faster. [sponsored]
- How to lower your taxable income and pay less in taxes. [sponsored]
- ‘My Community Made’ is a new marketplace to compete with Etsy and Amazon Handmade.
- EXCLUSIVE: Interview with Chris Prill, VP eBay Motors, discussing the new Guaranteed Fit program.
The company gave as a reason for the surcharge the additional costs residential deliveries bring to their system during this period.
During the holiday season, daily volume exceeds 30 million packages, which is far above the usual average of 19 million packages. Much of the increased volume is due to residential deliveries which are costlier than business shipments.
Business addresses are more efficient to deliver as delivery trucks only stop once to drop off multiple packages. Even an increase in packages does not change the stop frequency dramatically on commercial address routes.
When residential deliveries increase, the stop frequency increases as well. This issue means more stops per route which require more trucks to handle the same geographic area for deliveries.
To provide the service level the company promises, it has to hire temporary workers, lease warehouses and trucks, and reserve additional air capacity.
ECOMMERCE HOLIDAY DELIVERIES A STRUGGLE FOR ALL DELIVERY SERVICES
During the 2013 and 2014 holiday season, UPS received much negative press due to missed deliveries before Christmas. A fair amount of last minute packages did not arrive to customers until after the Christmas holiday.
Since then UPS and FedEx have both worked with larger online retailers to forecast volume. They also invested heavily in excess logistics assets and improving the overall efficiency of their delivery network.
Of course, these upgrades came at a significant additional cost that has made some investors a bit unhappy about the spending.
WHAT ARE THE HOLIDAY SURCHARGES UPS PROPOSES?
In their press release, UPS stated some customers would see as much as 97 cents per package fee on residential and oversize/overweight packages on 1, 2, and 3-Day Air services between December 17-23.
The company also stated a 27 cents surcharge would be levied on UPS Ground packages from Nov 19 to Dec 2 and Dec 17 to Dec 23.
UPS FIRST TO INTRODUCE HOLIDAY SURCHARGES
With the decision to add holiday surcharges, UPS became the first parcel delivery company to do so. FedEx, which released earnings last week, stated they are reviewing the idea.
However, FedEx and UPS often follow each other’s policies. So it would not be a surprise to hear that FedEx is adding holiday surcharges as well.
COURIER SURCHARGES A BOOST FOR UNITED STATES POSTAL SERVICE?
If both UPS and FedEx adapt the holiday surcharges, USPS may see increases in holiday parcel delivery volume.
The nation’s postal service has improved tracking and delivery and continues to gain much-needed revenue from package deliveries.
Holiday surcharges could be the last straw for many small online retailers. Many already struggle to keep up with increasing shipping costs by UPS and FedEx.
Last year, both carriers adopted more stringent volumetric pricing schemes. For some online retailers, this was a significant “hidden” price increase on shipping they already absorbed.
Free Shipping is the norm in the U.S. eCommerce industry; small online retailers are going to look for alternatives to combat hidden price increase and surcharges.
SHIPPING COSTS A CONCERN FOR ALL
Even Amazon is working around rising shipping costs. Prime Air and its own managed fleet of delivery drivers are all part of the strategy to keep shippings costs down.
Some analysts believe that Amazon’s purchase of Whole Foods Markets may also be part of a strategy to entice customers to pick up Amazon.com purchases. Similar to as Walmart is already offering a discount for picking up Walmart.com orders at its stores.
Unfortunately, many online retailers are stuck with UPS and FedEx. USPS pricing for parcel shipments is most competitive for smaller and lower weight shipments.
UPS only announced this new policy for the United States. No other countries are expected to be included in this policy.
Connect with us: Head over to our Facebook Group for Small Business Sellers and interact with other small business owners.
Follow us on Facebook, Twitter, or LinkedIn to stay up to date with relevant news and business insights for your online business.
Subscribe to Our Newsletter
Business Insights for Your Online Business Presented with a Dash of Humor
We do not share your information and you can unsubscribe anytime.
Richard is co-founder of eSeller365. He has over 17 years of experience on eBay which includes tens of thousands of sales to buyers in over 100 countries and even has experience with eBay’s VeRO program enforcing intellectual property rights for a former employer. And for about two years Richard sold products on Amazon using Amazon FBA in the US.
To “relax” from the daily business grind, for a few weekends a year, he also works for IMSA as a professional race official.