The overall spike in e-commerce purchases and package shipments since the start of the COVID-19 pandemic has ramped up shipping costs for major delivery companies, and now new fees are going to come at a bigger price for their retail clients and possibly their end consumers.
United Parcel Service (UPS) has added surcharges to high-volume shippers that move more than 25,000 packages per week during the holiday season. The fees could cost as much as $3 per package for ground shipments and other lower-priced shipping options and up to $4 per package for air shipments. UPS hasn’t provided an estimate on how many retail customers would be affected.
This is a big jump for retailers that already have been investing millions into their fulfillment capabilities, particularly as consumers either were unable to shop their stores for a three-month span or stick to shopping online from the safety of their homes.
Even with these investments, retail power players like Walmart, Target and Amazon have still relied on shipping services such as UPS and FedEx to deliver goods to customers. And retailers that have struggled to keep up will face even more pressure to absorb more expenses even as they drive less traffic. During the season, the onus will be on the retailers to now decide whether they want to eat the costs or pass some of them onto shoppers in the form of pricey delivery fees.
The per-package fees are considerably higher than in 2018, the last time UPS tacked on surcharges during a peak holiday season. Surcharges then reached 28 cents on ground shipments and up to 99 cents for some air shipments.
But the demand has certainly been higher than 2019 levels, let alone those in 2018. In the second quarter ended June 30, UPS said consumer shipments jumped by more than 65 percent over 2019. Average daily volumes in the U.S. grew by nearly 23 percent and reached 21.1 million packages per day,
The shipping company said in an Aug. 7 memo that it had instituted the additional fees for some packages shipped within the U.S. and others sent internationally. In the memo, it listed the shipping surcharges, which depend on the item’s weight, when it is sent, and whether a customer ships a high volume of packages.
FedEx added surcharges to international shipments of packages and freight starting April 6. The company said the surcharge doesn’t apply to domestic shipments, but has not stated whether more surcharges will be applied this holiday season.
As a result of the various COVID-19-related containment restrictions, “air cargo capacity is limited, and we are incurring incremental costs as we adjust our international networks to best deliver much-needed goods and services in this constrained environment,” FedEx said on its website.
UPS unveiled the surcharges after a Wall Street Journal article broke the news alongside an internal document, in which the shipping carrier told its sales team that the fees would offset higher costs to hire new workers and to secure additional air, truck and rail capacity.
“These surcharges help protect our network and ensure UPS is compensated appropriately for additional costs incurred to maintain our high-quality service,” according to the document, which was viewed by WSJ.
In a recent earnings call, UPS CEO Carol Tomé said the company would take a more aggressive approach to raising prices on large retailers to manage capacity.
As of now, the surcharges will apply from Nov. 15, through Jan. 16, 2021, but UPS indicated in a statement that peak surcharges are subject to change and peak periods may be extended or otherwise changed. The fees rise based on how much higher the weekly shipping volume is compared to the customer’s average weekly shipping volume in February. February is seen as the baseline because it was the month before the pandemic upended buying and shipping patterns.
For example, the starting fees are $1 for ground shipments and $2 for air for service levels that reach 110 percent to 200 percent of the average weekly February shipping volume. These fees increase to $2 for ground and $3 for air when volume reaches more than 200 percent to 300 percent of February averages, and jump to the maximum $3 and $4 upon exceeding 300 percent.
The company said it would also include surcharges of $5 on shipments that require additional handling and $50 for large items. These fees apply to customers who ship more than 1,000 total packages in any week during the peak period.
This wouldn’t be the first time UPS has added surcharges since the pandemic descended on the world. On May 31, the company instilled extra charges for shippers of all sizes ranging from 30 cents per package for UPS Ground and SurePost, with large packages incurring a $31.45 fee. And on July 26, UPS applied peak surcharges on shipments from Mainland China and Hong Kong that range from an extra 75 cents per pound to $1.59 per pound.