After a tough second quarter which saw many customers trade down to less profitable shipping alternatives, UPS is upping the ante on its demand surcharges.
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The parcel delivery giant established the new set of fees July 15, two months earlier than last year when the company revealed the surcharges in September.
Fees for larger packages and parcels that require additional handling will kick in on Sept. 29, before escalating even further on Nov. 24.
While these surcharges reached $74.90 per larger package and $6.90 per hard-to-handle package last year, the first set of fees will accelerate further this September to $84.75 and $7.75 per package, respectively. In late November, these extra fees jump again to a respective $99 and $9.95 per package.
Demand surcharges will take effect across UPS Ground Residential, Air and SurePost packages on Oct. 27 before jumping up again on Nov. 24. SurePost and Ground Residential start at 25 cents per package in October before leaping to 50 cents per package a month later. Parcels via UPS Air will draw an extra $1 fee, and then increase to $2 per package in November.
An additional demand surcharge will apply to certain UPS Air, Ground Residential and SurePost packages for customers who were billed for more than 20,000 packages during any week following October 2023.
All demand surcharges will be effective until Jan. 18.
FedEx has not unveiled its demand surcharges yet. The UPS rival first used the “demand surcharges” terminology last year when it unveiled them last August as a way to establish that the company would implement the added hikes beyond the holiday season.
In the UPS earnings call earlier this month, one analyst said he was “surprised” by the magnitude of the surcharges, particularly on the grounds that “it doesn’t feel like there’s a lot of pricing power right now.”
Carol Tomé, CEO of UPS, attributed the surging demand surcharges to the condensed holiday season, which she noted only had 17 days between Thanksgiving and Christmas.
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“As we look at the volume projections for peak, we are expecting on our peak day, which is December 18, as the highest volume ever in our network,” Tomé said. “When you have that kind of volume flowing to your network, you actually have to charge to service them well, because you have to hire people and lease aircraft and delivery vehicles. We think that the prices are going to stick because of what the environment is telling us from a demand perspective.”
Tomé pointed out that UPS is up against “very easy comparison” from last holiday season, as volume in the network had been in steep decline —7.4 percent for average daily domestic volume and 8.3 percent for average international volume.
The year-over year comparisons, along with the condensed peak, have given UPS the confidence to implement the surcharges, Tomé indicated.
“We have the ability, through the modifiers that [Carol] highlighted, to dynamically price across our enterprise customers to better align our price to our cost to serve while also providing the best value for our customers,” said Matt Guffey, executive vice president, chief commercial and strategy officer at UPS, during the call.
The surcharges also come as the company welcomes a new air cargo contract with the U.S. Postal Service (USPS), putting UPS’s own network capacity under further pressure. The network will be fully implemented to serve the USPS on Sept. 8, with the contract officially starting Oct. 1, said Nando Cesarone, executive vice president and president, U.S., of UPS.
The courier largely experienced issues driving profitability this quarter as customers shifted from the more lucrative Air service to Ground, and from Ground to SurePost, the company’s economy service for low-value, residential shipments.
UPS also has yet to release its general rate increase (GRI) for 2025. The company established a 5.9 percent GRI for 2024, off the heels of a new contract with the Teamsters . FedEx typically hikes at the same rate, with both companies raising their GRIs in lockstep since 2012.
According to data from parcel shipping intelligence platform Reveel, the 5.9 percent GRI that kicked in for this year likely results in a 7.7 percent increase in shipping costs in the coming year for UPS customers, and an 8.2 percent hike for FedEx users when depending on other factors such as business volume or contract negotiations.
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