UPS Raises 2015 Rates Earlier Than Expected

Ahead of its third quarter earnings call this Friday, freight transportation and logistics titan UPS rolled out rate increases for 2015 that are set to take effect on December 29, 2014.

On that date each of the following UPS segments will see general rate increases of 4.9 percent, including: UPS Ground, Air, International, and UPS Freight (its less-than-truckload group).

UPS said these increases are for movements between the U.S., Canada, and Puerto Rico.

This announcement follows news regarding UPS’s June announcement to apply dimensional weight pricing for all of its UPS Ground services and UPS Standard to Canada packages, which also will take effect on December 29. UPS said that dimensional pricing is already in effect domestic and international UPS air service, UPS Standard to Mexico ground service, UPS Ground Packages, and UPS Standard to Canada packages that are 3 cubic feet or more.

A noted parcel expert told Logistics Management that the real surprise in this GRI was that it broke from prior tradition and was announced early

“In the past they announced in November (November 22, 2013 for 2014, November 19, 2012 for 2013, and November 18 2011 for 2012),” said Jerry Hempstead, president of Orlando, Fla.-based Hempstead Consulting. “It appears UPS is taking lessons from their competitor, FedEx, whom announced its 2015 rates prior to their investors quarterly call which leads to questions on the call and to a degree helps to pump the stock. UPS has their quarterly investors call this Friday.A little bit of a turn in the announcement is that traditionally FedEx allowed UPS to set the prices for ground parcel shipping and just matched their tariff after UPS went public.”

Instead, Hempstead said that this year for the first time FedEx announced ground parcel prices for the next year, and UPS matched what FedEx did.

“We saw this behavior earlier this year, when FedEx announced the elimination of the 5184 cu. in. waiver on the dimensionalization of ground shipments and UPS followed suit with they, too, eliminating the waiver,” he said. “This is the ultimate reality of the lack of competition for national integrators. It may be good news for shareholders, but bad news for shippers.”

As previously reported, dimensional weight pricing has seen its share of changes from UPS and its main competitor, FedEx, in recent years.

When FedEx and UPS announced rate changes for 2011 in late 2010, they both announced they would be implementing a change to the dimensional weight volumetric divisor, which is used to tally the amount of space allocated to a specific shipment. It is derived by multiplying a shipments length, width, and height, and then dividing that figure by its weight and then dividing it by 166, with the shipper being charged the greater of the result of the actual weight or the dimensional weight as determined by the aforementioned formula

In 2010, FedEx implemented a change to the dimensional weight volumetric divisor from 194 to 166 for U.S. domestic services. And like FedEx, UPS made changes to its dimensional weight volumetric divisor, with U.S. Domestic UPS Air Services and U.S. Domestic UPS Ground Services (for packages 3 cubic feet or larger) changing from 194 to 166, among others.

Parcel industry experts told LM at this time that when these changes were made they would be a major hit to shippers, explaining it is strictly margin improvement as the carriers do not provide additional work or additional capacity investments while receiving more incremental revenue on the same shipments handled.

In May, FedEx announced pricing changes for its FedEx Ground and FedEx Freight offerings.

For FedEx Ground, the company said that effective January 1, 2015, it will apply dimensional weight pricing to all shipments moved via FedEx Ground, as opposed to its current method of applying dimensional weight pricing to packages that measure three cubic feet or more. FedEx defines dimensional weight pricing as “a common industry practice that sets the transportation price based on package volume–the amount of space a package occupies in relation to its actual weight.”

Company officials said that this change will align the FedEx Ground dimensional weight pricing with FedEx Express by applying it to all packages.