Will UPS’s Black Friday delivery surcharge have retailers seeing red?

Discussion
Photo: UPS
Jun 20, 2017
George Anderson

Christmas is going to get a bit more expensive this year for retailers. UPS announced yesterday that it will add a surcharge to packages delivered during peak holiday shipping periods.

The carrier will tack on 27 cents to packages shipped via ground delivery during the last two weeks of November and the week between Dec. 17 and 23.

For items sent for next-day and second-day delivery, UPS will only add a surcharge for the week between Dec. 17 and 23. Next-day shipments will cost an additional 81 cents per package while second-day air will increase by 97 cents.

Retailers have traditionally focused Christmas marketing efforts on getting customers to make purchases at the beginning of the holiday season (Black Friday) while also pursuing the large number of consumers who wait until the week before Dec. 25 to complete their purchases.

“We’re focused on helping our customers achieve success during some of their most important selling seasons,” said Alan Gershenhorn, UPS chief commercial officer. “To meet their requirements, UPS flexes its delivery network to process near double our already massive regular daily volume, and that creates exceptional demands.”

Patrick Gill, CEO of TackleDirect.com, a site that sells high-end fishing gear, told The Wall Street Journal that UPS’s fees will add costs when businesses such as his that compete against Amazon.com, Walmart and others can least afford it. The added expense means his company will need to shift some of its deliveries to other services.

Mr. Gershenhorn sought to play down the potential impact of the added charges on retailers. “With the new peak charge, per-package costs for many shipments will only marginally increase during this very busy time of the year,” he said.

While UPS rival FedEx has yet to announce whether it will also increase rates for the holiday season, it is common for the two companies to mirror each other’s rates.

DISCUSSION QUESTIONS: How will UPS’s peak fees affect retailers during the Christmas selling season? Do you think retailers will absorb the added costs or pass them on to customers?

Braintrust
"Show the consumer what it costs to ship during these times and offer them options. We can't keep giving away the farm."
"Every penny charged only brings these companies closer to their untimely death. Adapt or perish should be UPS and FedEx’s key mantra..."
"This is a great news hook, but is not highly consequential for retailers..."

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23 Comments on "Will UPS’s Black Friday delivery surcharge have retailers seeing red?"

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Max Goldberg
BrainTrust

With free shipping considered to be a consumer must-have, look for retailers to either 1.) Eat the surcharge, 2.) Require a minimum purchase to get free shipping or 3.) Seek alternative methods of shipping. I think most will try to find a way to eat the surcharge.

Bob Amster
BrainTrust

Customers should be willing to pay more for the last-minute service during peak periods. I think consumers understand that dynamic. Retailers cannot afford to take the hit for everything so they will find a way to pass the cost on.

JJ Kallergis
BrainTrust
Peak fee increases make sense given the massive amount of online shopping that is done during the holiday season and the stress it puts on the UPS and FedEx supply chains. These two companies invest a lot on behalf of their customers to get packages to the right place at the right time. I would predict that given the modest increases, it will not have a material impact on retailers during the important Thanksgiving and Christmas shopping period. Even if retailers passed on these costs to the consumer, which I do not think they will, would an online shopper think twice about the convenience of home delivery for 27 cents? Not likely. However, when you consider the thousands or millions of packages that some retailers process for home delivery, it may cause some to work online promotions around these windows of the last two weeks of November and the week leading up to Christmas in the name of profitability. Or it may even cause some retailers to increase the minimum shopping quantity for free online shipping. And the least likely scenario, which may be music to many retailers’ ears, is that consumers might actually get off their couch and go… Read more »
Dave Bruno
BrainTrust

This is not good news for retailers already struggling to overcome the burden of shopper expectations for free/low-cost shipping and eroding margins, so “passing the costs on to customers” is much easier said than done. The long-term solution is to break the cycle of free shipping promises, but doing so comes with great risk. Perhaps until that day comes, retailers will instead look to other logistics providers that don’t add surcharges during the holidays, and UPS will be forced to re-think this “strategy” if they wish to maintain their competitive position.

Ryan Mathews
BrainTrust

I think George answers his own question in the final sentence of this post. Historically, FedEx and UPS have maintained competitive price parity. This is not to suggest that they collude on pricing, but rather to note that shortly after one of them takes heat for a price increase the other discretely mirrors the cost hike. So if, say, in October or November FedEx announces it will be taking its holiday rates up, we are likely to see a slew of articles themed something like, “Will Shipping Costs Kill Black Friday?” And, the answer is no. Retailers will likely pass those costs along, but will shoppers notice? At the 27 cent rate hike a consumer sending out 100 packages would see a total shipping cost increase of $27.00, probably not a show-stopper. That said, I’m sure retailers will find UPS’ holiday increases — whether or not they are matched by FedEx — a convenient excuse for explaining away declining sales, should they need one.

Lee Kent
BrainTrust

Perhaps now is the time for full disclosure. UPS can’t give away their busiest season any more than retailers can. Show the consumer what it costs to ship during these times and offer them options. Maybe even give breaks to loyal customers or minimum purchases. We can’t keep giving away the farm.

For my 2 cents.

Art Suriano
BrainTrust

Depending on the retailer, the item and the purchase(s), this could have a negative impact. The smaller retailers will feel the struggle before the bigger guys. Some retailers will attempt to persuade customers to pick up items in the store when possible, with incentives. Some may offer early shopping “extra savings” to beat the increase in shipping fees. And some will pass the cost onto the consumer. Competition is already fierce and this only makes it harder. Sales matter the most so as long as the holiday season is a strong one (and hopefully it will be), retailers will find the solution that’s right for them.

Cathy Hotka
BrainTrust

While they probably won’t do it, this is an opportunity for retailers to train customers to think ahead by NOT eating the surcharge. Christmas has the same date every year … why wait until December 23 to start shopping?

Adrian Weidmann
BrainTrust

Online shoppers seek and have come to expect free shipping. Free shipping is a purchase decision criteria for many shoppers (including me). It is not surprising that UPS (and others) will try to leverage this expectation into surcharges and other financial gains. They are a business that needs to react and be responsible to their shareholders. Unfortunately, retailers will be forced into a difficult decision — eat the surcharge or pass it along to their shoppers. My guess is that the big retailers (Walmart, Target, etc.) will eat the surcharge and smaller retailers will need to create minimum purchases to get free shipping.

Phil Rubin
BrainTrust
1 month 2 days ago

These surcharges are relatively minimal in the context of whatever the total basket of goods will be. If time matters — and it does — it’s a relatively small price to pay for either the retailer or the customer. Given the significance of Black Friday, if anything is surprising it’s that the surcharge isn’t higher.

Lyle Bunn (Ph.D. Hon)
BrainTrust

A surcharge on free shipping moves this function of business closer to having the customer pay. If free shipping is a tactic to enable online/mobile commerce, it is part of the balance in motivating e-commerce and in-store purchasing as overall value is the criteria.

Meaghan Brophy
BrainTrust

I think retailers should push sales for those first two weeks of December when there is no surcharge. Otherwise requiring an order minimum for free shipping or charging a small delivery fee won’t be the end of the world. That time of year shoppers are less concerned about shipping costs and more concerned with getting the right item at the right time. It makes sense for UPS to charge a little extra for the massive strain holiday retail puts on their system.

Lee Peterson
BrainTrust

Shipping fees always get passed on to the consumer. Even with Prime. It’s just a matter of whether or not and/or how you tell them. Where this gets dodgy is when you’re selling commodities, then you can’t build the costs into the cost of goods without it being obvious. Further proof (as if you needed any) that private label is the only road to success in the future. And for commodity brands, it’s DTC or Amazon.

Also it seems to me that if you’re FedEx, you might want to tout the fact that you DON’T charge extra and ride that to the volume bank. I definitely smell a bidding war coming up.

Jasmine Glasheen
BrainTrust

An unfortunate side effect of an increasingly transparent economy, surge pricing is becoming the norm. Customers already pay more for flights, hotel rooms and ride-sharing services during peak times, so it makes sense that it costs more to ship. If UPS wants to pull off passing these costs along to the retailers, they’re going to need FedEx to get on board.

Ben Ball
BrainTrust

Consumers will wind up paying for this. They always do. They pay for everything. The only question is how the “Value Added Tax” (aka the variable margin earned) gets distributed among all the participants in the supply chain.

In this case, I predict that the retailer’s variable margin earned on peak holiday sales just decreased by 27 cents per package. As for consumer shopping behavior changing, retailers treat customers the way grandparents treat new babies — who’s going to be the first one to tell them no?

Charles Dimov
BrainTrust

This could be an opportunity for retailers. Push some of the Black Friday shipping costs to customers and promote in-store pickup as the FREE option. That means customers can get their deal online then come in at an off-peak time (when the Black Friday craze has died down), to pick up their items in-store — where they will probably buy a few other items.

Christopher P. Ramey
BrainTrust

From a consumer’s perspective, the cost is minimal. It will be passed on.

There’s more to this than we’re reading. Retailers and all major shippers are actively negotiating and extracting new logistics guarantees.

Ken Cassar
BrainTrust

This is a great news hook, but is not highly consequential for retailers. The increase of 27 cents on shipments that average $8 is less than 4 percent. The real issue is the $8, not the tiny short-term increase in price.

Kai Clarke
BrainTrust

This is another way for the logistics companies to make money and hasten their eventual demise. It is these positions that “forcing” companies like Amazon (and soon Walmart/Jet) to seriously consider alternative means to delivering their own packages and creating their own delivery solutions and fleets of carriers. Every penny charged only brings these companies closer to their untimely death. Adapt or perish should be UPS and FedEx’s key mantra, instead of charge or perish.

Craig Sundstrom
Guest

There is, of course, no set rule … and in light of (all of) our recent conversations regarding the prevalence of “free shipping,” it almost seems like a trick question.

Shep Hyken
BrainTrust

It’s no surprise. Someone is going to have to pay for it. If UPS (and any other carrier) is to deliver on time, they must be properly staffed and ready. That costs money. Retailers in certain industries may be able to absorb the fees, but there are some retailers in highly competitive markets, with ultra thin margins, that are going to have to find a creative way to package this into their pricing. Predictions from all of the BrainTrust are interesting. Looking forward to seeing how this plays out.

Stefan Weitz
BrainTrust

This move will hopefully ignite the creativity and inspiration of retailers and brands to embrace ship from store and ISPU technologies where they can leverage their inventory more effectively and utilize USPS and regional carriers to move product at a more cost-effective price point. Consumers are tired of paying a lot for shipping for sub-standard service now that Amazon has set the bar for free 2-day. One retailer I just visited asked me to pay $19 to ship a shirt in 2-3 days — clearly not competitive.

Min-Jee Hwang
BrainTrust

It is no surprise UPS has added surcharges for the holiday season as it is the busiest shipping season. Smaller retailers will be the ones taking the biggest hit as they may not have the capabilities to absorb the added fees. Furthermore, the increase in shipping fees may lead to an increase in free shipping minimums. Another solution could be retailers attempting to shift their promotional calendars back to encourage shoppers to make purchases before the seasonal UPS fees go into effect. Retailers may try to pass on the shipping cost to their customers with fewer discounts and slightly higher prices.

wpDiscuz
Braintrust
"Show the consumer what it costs to ship during these times and offer them options. We can't keep giving away the farm."
"Every penny charged only brings these companies closer to their untimely death. Adapt or perish should be UPS and FedEx’s key mantra..."
"This is a great news hook, but is not highly consequential for retailers..."

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