In a published Supply Chain Matters commentary last month, we raised the specter that UPS’s announced added surcharge efforts relative to peak holiday package shipments, if successful, would lead to added structural shifts in online business practices. The question is whether this would benefit UPS at the expense of shippers and the broader retail industry. 

Up to this point, rival FedEx had not weighed in with a similar structural surcharge, until this week.

Rival FedEx has now elected not to add additional package surcharges for parcels during specific pre-holiday surge weeks that span Black Friday through the Christmas holiday. The carrier instead plans to hike fees for any larger dimensional packages shipped during the peak holiday period later this year.

The motivation for the announced UPS pricing actions were obvious, namely to protect or boost the carrier’s own profit margins by compensating the carrier for needs to add surge personnel and logistics capacity. The UPS surcharges would add 27 cents for residential deliveries for the weeks spanning November 19 thru December 2 and December 17 thru 23. The carrier further indicated an added surcharge of between 81 and 97 cents to overnight, second- or third-day deliveries for residential deliveries between December 17 thru 23. There were other announced charges for oversized packages.

UPS communicated that such added charges will motivate retailers to plan merchandise promotions earlier in November and thus lower the need for peak staffing and augmented capacity costs. However, the open question remains whether holiday consumers will change their shopping habits, especially those procrastinators who always wait until the just before the holiday to execute holiday buying decisions.

FedEx is undercutting its rival to possibly gain added customers, leaving UPS to standalone in its ability to convince retailers to go along with the added blanket surcharges tied to specific pre-holiday weeks.  That is obviously significant.

A spokesperson for FedEx indicated to The Wall Street Journal that the decision to not match UPS should not be viewed as a competitive response, but rather ensuring that the carrier prices effectively.

In our prior commentary, we opined that the U.S. Postal Service will likely see added package volumes during the busiest holiday periods, with the added risk that the service will not be equipped to handle such a surge or be able to recover added costs. Retailers and other shippers can now add FedEx to that dimension, and now, the combined alternative of the USPS and FedEx provides added options for peak residential shipment decisions.  Third-party logistics services firms, who are already marshaling resources and services to handle the need to support online purchases of larger-sized goods such as appliances, furniture and like will also benefit with increased holiday volumes, as well as opportunities to negotiate added services to online retailers.

The open question remains as to whether UPS’s announced efforts can alter peak holiday shipping norms among retailers. With this week’s actions by FedEx, that candidly looks less effective. At this point the question is how married UPS will be to its added surcharge actions, with the willingness to risk reduced holiday volumes for added margins.

Regardless, retailers can rest somewhat easier now knowing that there are now other options to support peak holiday shipment volumes.

 

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