UPS rolls out new COVID-19-driven Peak Surcharges

Atlanta-based global transportation and logistics bellwether UPS announced this week that it plans to implement COVID-19-related Peak Surcharges. A UPS customer notice stated that these new surcharges will take effect on May 31, 2020.

“Until further notice, certain U.S. domestic packages will be subject to one or more Peak Surcharges, as applicable,” UPS said in a customer update. “As previously announced, a Peak Surcharge applies to certain international shipments from all origins to all destinations, including the U.S., effective April 12 until further notice. The Peak Surcharges applied to certain international shipments will continue to apply. Peak surcharges are subject to change and Peak Periods may be extended or otherwise changed.”

The company added that Peak Surcharges will apply to packages shipped during the specified Peak Periods for the origins, destinations, and service levels, adding that they apply in addition to all other applicable charges.

Peak Surcharges applied by UPS to shipments from the China mainland to the U.S. will head up by $0.36, on average, and the surcharge for shipments from Hong Kong SAR to the U.S. will see an uptick of $0.11, on average. And UPS also added that a Peak Surcharge will be applied to certain UPS Ground Residential and UPS SurePost packages, “for all U.S. origins and destinations, for qualifying customers whose combined volume of Ground Residential and SurePost packages during the prior week exceeded the customer’s average weekly volume for February by more than 25,000 packages.”

For UPS Ground Residential and UPS SurePost, this will be in the form of a $0.30 per package Peak Surcharge.

The company also stated that a Peak Surcharge will apply to qualifying customers who shipped more than 500 large packages during the prior week for all U.S. origins and destinations. UPS said it defines large packages with length plus girth combined exceeding 130 inches, or with length exceeding 96 inches. A $31.20 Peak Surcharge will be applied once the initial threshold has been met in any week, regardless of volume, according to UPS.

A UPS official told LM that UPS routinely adjusts its commercial terms to reflect changing market conditions, the costs it incurs to serve customers and other factors.

“The Peak Surcharges reflect the current dynamic market conditions and uncertainties caused by the Coronavirus, which is impacting available capacity and market demand,” he said. “These surcharges are designed to balance our network to provide the best possible service for all customers, and have been constructed based on our customers’ unique package volume characteristics.” 

A report in The Wall Street Journal noted that these Peak Surcharge fees would apply to large e-commerce players like Amazon and large retailers like Target and Best Buy, among others, that have been shipping more e-commerce packages, due to retail store locations currently being closed, due to COVID-19. And it added that these new surcharges are likely to hit large shippers the most, as opposed to smaller business or occasional shippers.

John Haber, founder and CEO of Atlanta-based Spend Management Experts, said that this change was driven by the fact that UPS is now delivering way more residential packages than commercial packages and their delivery costs have gone up considerably due to COVID-19.

And Jerry Hempstead, president of Orlando-based Hempstead Consulting, described the UPS Peak Surcharges as very surgical.

“It does not apply to a large universe of shippers,” he said. “The shippers that are impacted, if not protected, by their contract will have to either absorb the charge or build it into the cost of price sold. It is not unexpected. It is modest when you consider what’s going on in the marketplace.”

As for whether FedEx, UPS’s largest competitor, will implement a corresponding surcharge of its own, Rob Martinez, president and CEO of San Diego-based Shipware, observed in a LinkedIn post that it is highly likely. His rationale for that was demand exceeding supply and resulting in prices going up.

“FedEx has been capping volume for many high volume ecommerce shippers,” he wrote. “It stands to reason they’ll try to recover additional costs of holiday-like volumes in the month of May, especially now that UPS has announced the rate hikes.”

As previously reported in LM, the ongoing impact of the COVID-19 pandemic is changing the playbook, in some ways, for how global transportation and logistics bellwether FedEx is approaching capacity and management for its SmartPost offering, its last mile delivery service partnership with the United States Postal Service (USPS).

That was the main takeaway from a recent report in The Loadstar, which observed that large shipper users of SmartPost are seeing reductions in equipment allocation from the Memphis-based carrier. This has been the narrative in industry circles, with parcel stakeholders observing that FedEx has been capping its weekly pickups and volumes, with volumes running as high as Peak Season levels.

Hempstead said that FedEx has an interesting problem right now in the form of too much business.

“It’s for the most part residential and bulky, and it’s having an impact on stations that have issues with undeliverable packages,” he said. “They are delivering seven days a week so they just don’t have a way to take a breath. Amazon is facing a similar surge, as is UPS. Everyone is beyond last December’s peak volumes. Both UPS and FedEx have suspended their service guarantee. Of course, without knowing when life will return to “normal,” FedEx, at this point, has made a decision to limit some shippers. The lowest yielding traffic is SmartPost, followed by Home Delivery and then Ground. FedEx has been trying to stay disciplined in its hiring as its balance sheet has been in need of improvement for some time. One might call it profitless prosperity. All this shall pass, and then the big concern will be all this capacity and too few B2B transactions. You just know that’s coming.”