UPS flexes its muscles on shipping terms
UPS is taking a harder line on shipping fees, particularly around discounts for bigger packages.
The Wall Street Journal reports that UPS recently began to approach retailers about changing the terms of their contracts, looking for better compensation or eliminating deliveries for big-bulk items such as grills, mattresses and patio furniture. The big items clog up of conveyor belts at sorting centers, take up extra space in trucks, and require extra handling for both drivers and sorters.
In the past, those costs were waived or discounted as part of contract negotiations with the promise of heavy volume. But related shipping inefficiencies have become more problematic as e-commerce growth has surged.
After missing some holiday deliveries due to weather and last-minute order challenges in 2013, UPS earlier this year indicated that productivity suffered this past holiday as it over-prepared for the peak season.
"Though customers enjoyed high quality service, it came at a cost to UPS," said David Abney, UPS’s chief executive officer, in its fourth-quarter release. "Going forward, we will reduce operating costs and implement new pricing strategies during peak season."
On its fourth-quarter conference call, Mr. Abney stressed the company "absolutely will charge our customers more for the extra costs that we have in peak" shipping season.
On its first-quarter conference call, UPS officials further said it had chosen not to pursue some lower yielding contract renewals.
"It’s not like we just walk away," said Mr. Abney on the call. "We try to give options and we try to show the value. There are some cases that we choose not to pursue."
Retailers are already said to be facing higher shipping fees due to a shift in January by both UPS and FedEx toward using dimensional weight pricing for most parcels. While fees in the past had been based solely on weight, packages now take into account external package dimensions as well. The change is partly designed to motivate customers to adjust packaging, i.e., reduce the number of oversized boxes filled with foam surrounding much smaller items.
- UPS Plans to End Some Shipping Discounts for Holiday Season – The Wall Street Journal (sub. required)
- United Parcel Service First Quarter 2015 Conference Call – Seeking Alpha
- Dotcom Distribution CEO on Impact of DIM Weight Pricing – Multichannel Merchant
- UPS Announces Expected 4Q Results – UPS
- United Parcel Service Fourth Quarter 2015 Conference Call – Seeking Alpha
- UPS Eliminates Discounts for Large Retailers – ecommercebytes
- FedEx Announces 4.9% Rate Increase for 2015 – Multichannel Merchant
- A weighty shipping change ahead worries shippers – Internet Retailer
How do you expect e-commerce companies to react to the positions taken by Fedex and UPS? Will retailers absorb or pass on higher shipping costs to consumers this coming holiday season?