UPS Shippers: Read the Fine Print!
Parcel shippers be forewarned. Lately I’ve seen several misleading, if not unethical, business practices from the United Parcel Service (UPS). If you're like most shippers, you’ve negotiated incentives off UPS’s prevailing “published” or “list” pricing. For years, UPS used a single list rate for volume shippers and all incentives applied to an established set of rates.
UPS now has three sets of published rates:
- Daily Rate: Applies to shippers who have an existing customer account prior to Jan. 3, 2011 that provides for daily rates or UPS scheduled pickup service implemented prior to Jan. 3, 2011.
- Standard List Rate: Applies to shippers who have a customized agreement with UPS that provides for standard list rates or a UPS scheduled pickup account established on or after Jan. 3, 2011.
- Retail Rate: Applies to shippers who don't receive UPS scheduled pickup service, ship from a UPS retail location such as The UPS Store or UPS customer center, or ship infrequently with a UPS account number or payment card.
Daily Rates vs. Standard Rates
While the ground rates are the same, the new standard rates established this year represent a significant increase for air services over traditional daily rates. How much higher? A 6.2 percent average increase for Next Day Air (NDA); 12.9 percent higher for Next Day Air Saver (NDS); 10.2 percent higher for 2-Day Air (2DA); and a whopping 30.8 percent higher for 3-Day Air (3DA).
Do shippers operating under standard rates know they're paying up to 31 percent more than shippers under daily rates? I highly doubt it.
What’s UPS’s rationale for the new standard tariff? To better match FedEx's published rates. Shipware has validated that the new UPS standard rates are identical to FedEx's published rates (with a few minor exceptions).
New UPS customers can expect to be presented with the new, higher standard rates, especially when competing with FedEx Express services. I also expect UPS to convert many existing accounts, upon contract renewal, to standard rates. In fact, it's anticipated that the new standard rates will eventually become the de facto published rates for all UPS shippers.
Daily Rates vs. Retail Rates
The difference between the daily and retail rates reflects an even more dramatic price difference: a 14.3 percent average increase for NDA; 24.5 percent higher for NDS; 27.4 percent higher for 2DA; 35.8 percent higher for 3DA; and 44.2 percent higher for ground.
Changes to UPS Deferred Threshold Agreements
It doesn’t stop there. Shippers renewing or signing up for UPS “Deferred Tier Threshold Agreements," more popularly known as “Quarterly Rebates,” should be careful to review the fine print.
The Deferred Tier Threshold is a UPS incentive program that rewards shippers by rebating a negotiated percentage of net spend each quarter back to the shipper. Tied to revenue threshold targets, the program provides an opportunity for shippers to receive additional discounts in the form of a quarterly payment while enhancing UPS’s customer retention goals.
While I’d rather get the additional discounts up-front, the program works well for some shippers, especially those that charge shipping costs back to their customers. The rebate can make shipping a profit center.
However, for the past year or so, UPS added five words to these agreements that can strip out a lot of the incentive: “subject to all applicable minimums.”
Take this example: A shipper up for contract renewal negotiated a new 8 percent Deferred Tier incentive, two times better than its previous 4 percent. However, the shipper didn’t take into account the importance of “subject to all applicable minimums”.
As a predominately lightweight shipper, discounts are mitigated on more than half of all shipments due to minimum shipment charges (in 2011, the minimum is $5.17 for ground shipments). After signing a new agreement that was supposed to double its quarterly rebate, the net result was that the rebate was halved — only 2 percent of the net transportation charges.
UPS won’t necessarily point these changes out to you. Be sure to review all agreements with a fine-tooth comb and ask questions! Let me know if you have other examples in which you felt misled by UPS. And as always, let me know if I can help!
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.