UPS to Add Surcharges for Holiday Deliveries

United Parcel Service (UPS) will levy peak surcharges to U.S. residential packages for the holiday season, an unprecedented move by the shipping giant to pay for rising costs. The charges, ranging from 27 cents to 97 cents per package, will be applied to individual and commercial customers shipping to U.S. residences in November and December, UPS said Monday. While UPS has had residential shipping surcharges, it has never before tacked on holiday season fees. Ground residential deliveries will cost 27 cents more per package in the last two weeks of November and the week before Christmas. Between Dec. 17 to Dec. 23, UPS will charge 81 cents for next-day air and 97 cents for second- and third-day air deliveries. From Nov. 19 through Dec. 23, UPS will also apply peak surcharges to large packages and packages that exceed maximum size limits.

Total Retail's Take: This is unwelcome news for online retailers, many of which ship their orders through UPS. These added fees put even more strain on retailers trying to compete for holiday shoppers, many of whom make purchase decisions based on shipping costs when all other factors are equal. Many retailers will be forced to make a very tough decision: Do they take on the added costs, further driving down already slim product margins, or do they pass the burden of the higher costs onto customers, and hope that they're willing to pay? Furthermore, the appeal of free shipping programs offered by the giants of the industry — Amazon.com, Wal-Mart, Target — may be even more attractive to consumers this holiday shopping season, leaving SMBs in a very precarious position. I imagine there are a lot of upset retailers this morning.

"Costs categorically increase during surge volume periods, and for the most part, the carriers have unilaterally absorbed those added expenses," says Rob Martinez, CEO of Shipware, a company that specializes in parcel auditing services, as well as a being a blogger for Total Retail. "It makes sense UPS would take aim at cost recovery, as we've been predicting a peak surcharge since 2014.

"Not only do residential delivery costs increase as drivers are pushed further away from dense commercial routes, but larger, more-difficult-to-handle packages have been on the rise. FedEx and UPS have had to improve their distribution network to facilitate the delivery of bulky items. Both carriers have experienced increased demand for transportation of larger and heavier packages. With the growth of e-commerce, demand for oversized shipments have required that the parcel carriers re-engineer their networks as most of these larger items aren't transportable by conveyor belt. In fact, the carriers have had to create both permanent and temporary facilities during peak seasons entirely dedicated to the sortation of oversized packages.

"These changes are costing shippers more. Both FedEx and UPS announced new surcharges for “unauthorized” and “over maximum limits” to be applied to overly large and/or heavy pieces, which disrupt operations and require the carriers to incur additional handling costs. Other surcharges for larger items including Additional Handling Surcharges, Oversize Fees and Large Package Surcharges. These costs are compounded during surge volume periods, and it only makes sense that those shippers that drive those cost increases contribute to paying the higher expenses.

"It's no accident that peak cost increases were announced well in advance of the holidays, as UPS will need time to negotiate concessions with high-value customers rather than lose volume to FedEx — volume unlikely to come back after those holiday gifts under the tree have been unwrapped.

"The big question now is, will FedEx follow suit?"