First it was peak surcharges, then addendums to the surcharges, and now UPS has announced General Rate Increases for 2020-2021 (for a quick explanation of how GRIs work and how you can weather them best, watch this video). Starting December 27th UPS Ground, Air, and International services will increase by an average 4.9%. This increase echos UPS’s last round of GRIs and FedEx’s 2021 GRI which they announced last month. As is typically the case with these kinds of increases, UPS’s GRI will impact shippers differently depending on several factors.
UPS new CEO, Carol Tomé made several statements during their Q3 earnings call that provide context for the company’s direction and subsequently announced GRIs (quotes originally published here).
Statement 1: “The final piece of our strategy comes down to being better, not bigger. Now that doesn’t mean UPS is not going to grow because we are. It means that we will lean into growth from the right opportunities like SMBs, international, global freight forwarding, and other high-yielding sectors, and we will grow from our revenue quality initiatives. We are on a journey to optimize the volume that flows through our network.”
Statement 2 (answering an investor question about de-marketing large volume shippers that don’t meet margin goals): “When you have tight capacity, it also means that prices tighten. And as prices tighten there is a shift in certain customers who are more price-sensitive than others. We’re okay with that if we’re losing non-nutritive sales. We’re okay with that. It’s not about volume share growth. It’s about value share growth. So that’s how we’d like you to think about us at least in the short-term value share growth.”
But how does this new direction – quality over quantity – affect shippers?
- UPS continues to work for margin improvements for low weight shipments, by assigning larger increases to lighter packages in most service levels.
- Long distance air services will see larger increases than long distance Ground and short distance Air. If you typically ship long distance packages via Air to meet service commitments, it will cost you, especially in zones 7 and 8. This is one of the ways UPS sees itself as providing more quality service by capitalizing on air capacity.
- This doesn’t mean that shippers using primarily ground service are free and clear. Minimums on slowest services will increase 6.4%. And let’s not forget that minimum net charges are based on zone 2, 1lb shipments. This means, and we cannot stress this enough, a large increase for ecommerce accounts with a 30% discount in the 1-5lb range. Like, +7% on a 4lb, zone 5 shipment!
- The list of ZIP Codes eligible for Delivery Area Surcharges (DAS) has expanded by 711 (download the full list here).
- Surcharges on large packages are increasing.
- Starting January 10, 2021 any package with a combined length and girth of more than 105 inches gets slapped with additional handling charges.
- Starting April 11, 2021 non-Hundredweight Service packages will be hit with Additional Handling surcharges based on zone.
- Starting July 11, 2021 Hundredweight Service packages will also be hit with Additional Handling surcharges based on zone. Zone-based surcharge pricing details have not been published.
- Pretty much every surcharge imposed earlier this year will increase by over 4.9%
- Surepost increases have not yet been announced, but are likely coming soon.
So what does all this mean? Even though GRIs affect some shippers differently than others, everyone can expect some increase in cost. The price hikes will be particularly painful for low weight Ground packages and long distance Air packages. Large packages that require special handling will continue to be discouraged on the UPS parcel network.