UPS rolls out 2012 rate hikes

Late last week, UPS announced that new rates will take effect on January 2, 2012.

According to company officials, non-contractual 2012 rates will be comprised of a net increase of 4.9 percent for UPS ground packages and a net increase of 4.9 percent on all UPS air services and U.S. origin international shipments. This increase is identical to the one the transportation bellwether rolled out a year ago for 2011 rate hikes.

The company also said that the rate increase for UPS Ground shipments is based on a 5.9 percent increase in the base rate, minus a 1 percent reduction to the index-based ground fuel surcharge. And 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, which also mirrors 2011 increases.

UPS Next Day Air Freight and UPS 2nd Day Air Freight rates for shipments within and between the U.S., Canada and Puerto Rico will increase 5.9 percent, and UPS 3 Day Freight rates will remain unchanged, according to company officials.

An industry expert told LM that these UPS rate hikes are “very reasonable,” adding that these increases are unlikely to result in a significant earnings improvement from 2011 to 2012.
In July, 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 6.9 percent, which took effect on July 25.

And Doug Kahl, principal, Integrity Logistics Consulting Group and Executive Consultant Parcel, TranzAct Technologies, said that “the actual impact of the 2012 [UPS] rate increase can vary greatly from one shipper to another,” based on particular distribution patterns by service level needed to identify the real impact on a shipper’s cost structure.

As an example, Kahl pointed out that a zone 2, l pound Ground rate will now increase from $5.17 to $5.49 in 2012 for a 6.2 percent increase.

“This is an important rate as it is used to set the absolute minimum charge in many pricing agreements,” he said. “The increase was 6.8 percent in 2011 and 5.9 percent in 2010.  So while this year’s increase is comparable to recent history it is still higher than the overall average increase and can further inflate actual costs above the announced numbers.”

Jerry Hempstead, president of Hempstead Consulting noted that this year’s story with the UPS rate increase is that averages can be deceptive.

Most ground shipments, he said, weigh ten pounds or less, but for shippers using the UPS daily tariff, Hempstead observed it is hard to spot a rate that has the announced 5.9 percent increase, with the highest increase being for a 3-pound package going to zone 2 for an 8.81 percent increase, which is nearly 3 percent higher than the announced increase and likely more in line with what a shipper might expect.

“Of course, many shippers will have discounts, but in almost every case a shipper is constrained by the minimum charge, and the minimum of $5.49 is a 6.2 percent increase in every case—or more depending on what discount percent a shipper has negotiated,” said Hempstead.

He added that the progression of increases of the minimum charge in recent years has been staggering, increasing more than 30 percent in the last five years. In 2008, the minimum was $4.20 compared to $5.17 in 2010 and $5.49 in 2011.

“What is lacking in this year’s announcement is a major ‘gotcha,’ as shippers reeled with the staggering increase in cost associated with the change in the method of calculating dimensional weight,” said Hempstead.

UPS’s biggest competitor, FedEx, announced on its fiscal first quarter earnings call in September that it plans to increase shipping rates by a net average of 3.9 percent for U.S. domestic, U.S. export and U.S. import services, effective January 2, 2012. They added that FedEx Ground and FedEx SmartPost pricing changes for 2012 will be rolled out by the end of 2011.