UPS rolls out 2011 rate hikes

UPS announced that new rates will kick in, effective January 3, 2011.

Company officials said that 2011 rates will include a net increase of 4.9 percent for UPS ground packages and a net increase of 4.9 percent on all air express and U.S. origin international shipments.

And UPS Ground shipments rates, said company officials, are based on a 5.9 percent increase in the base rate, minus a 1 percent reduction to the index-based ground fuel surcharge, while the rate increase for air express and international shipments is based on a 6.9 percent base rate increase, minus a 2 percent reduction to the index-based air and international fuel surcharge.

On October 1, UPS Freight, the company’s less-than-truckload subsidiary rolled out a general rate increase covering non-contractual LTL shipments in the U.S., Canada, and Mexico of 5.9 percent, which took effect on October 18.

UPS also announced that beginning on January 3, 2011, the divisor used to calculate dimensional weight will change to the following:

• U.S. Domestic UPS Air Services will change from 194 to 166;
• U.S. Domestic UPS Ground Services will change from 194 to 166 (for packages 3 cubic feet or larger)
• export services from the U.S. for all services will change from 166 to 139;
• UPS Standard to Canada will change from 166 to 139 (for packages 3 cubic feet or larger in size); and
• Import to the U.S. from Canada and Virgin Islands will change from 166 to 139.

UPS officials said that dimensional weight for international multiple packages will be based on the greater of the actual weight or dimensional weight of each shipment in the package.

“These [rate increases] are not a big surprise,” said Jerry Hempstead, president of Hempstead Consulting. “I would have been surprised if they had not implemented the 166 dimensional weight rule after FedEx announced it. This is a major hit to shippers…it is all margin improvement for both UPS and FedEx as well. They do no additional work, make no additional capacity investment but get a windfall of incremental revenue on the same shipments they handle today.”

Hempstead these dimensional weight changes are good for shareholders and bad for shippers. He added that he was surprised at how low UPS’s ground increase is, considering that with only two ground parcel national carriers, whatever rate hikes one company announces is matched by the other, with the differences occurring in the discounting.

To put the dimensional weight changes into perspective, Hempstead explained that an 18"x18"x24” box with a dimensional weight of 40 pounds and an 8.5 percent fuel surcharge and a 50 percent discount would pay a rate of $92.58. But in January when the rate increase kicks in, the dimensional weight will bump up to 47 pounds (assuming the fuel surcharge stays constant but adjusted down 2 percent because of the way FedEx structured its increase) and the rate will rise to $109.91.

“The increase you are paying over your current charge is actually 18.7 percent…a far cry from the 5.9 percent discussed in the press release,” said Hempstead.

For more UPS stories click here.