Dear valued customer,
If you‘ve been left sticker-shocked after shipping a package with UPS recently, you‘re in good company. The cost of sending items via UPS has skyrocketed in recent years, leaving many businesses and individuals wondering what‘s caused the steep increases.
As a seasoned retail and logistics consultant, I‘ve taken a magnifying glass to UPS‘s pricing trends to get to the bottom of why the carrier has become such a pricey proposition. What I‘ve found is a confluence of factors, from pandemic-related pressures to the peculiarities of UPS‘s pricing model, that are creating a perfect storm of climbing costs.
To help you navigate this challenging shipping landscape, I‘ll break down the key reasons UPS is squeezing shippers‘ wallets more than ever. I‘ll also share some savvy strategies you can employ to keep your UPS spend in check without compromising on service.
By the Numbers: UPS‘s Pandemic Package Boom
There‘s simply no way to unpack UPS‘s recent price hikes without acknowledging the seismic impact of COVID-19. As the pandemic upended daily life around the globe, it also fundamentally reshaped how and where consumers spend their money.
With stores shuttered and shelter-in-place orders widespread, shoppers turned to e-commerce in record numbers. Digital spending in the U.S. jumped by over 30% in 2020 to more than $790 billion. This tidal wave of online orders translated to an unprecedented surge in shipments for major carriers like UPS.
Consider these eye-popping statistics:
- UPS‘s average daily package volume increased 23% in 2020 compared to the prior year
- Total UPS delivery volume hit 24.4 million packages per day in Q4 2020
- UPS‘s 2020 revenue increased 14.2% year-over-year to $84.6 billion
Absorbing this avalanche of packages has been an expensive proposition for UPS. The company has had to dramatically expand capacity while implementing COVID safety protocols across its operations. Costs for everything from personal protective equipment (PPE) to additional warehouse space add up quickly at the scale UPS operates.
A UPS spokesperson told CNN that recent price increases aim to "reflect current market conditions caused by the pandemic." In essence, UPS is passing along some of its soaring operating costs to shippers to protect profit margins.
Help Wanted: UPS‘s Labor Crunch
Meeting the massive uptick in package volume sparked by the pandemic has required more than just extra packing tape and delivery trucks. UPS has had to go on a hiring binge to beef up its workforce to handle the COVID-era e-commerce spike.
The trouble is, finding people willing to take on physically-demanding and often grueling roles like package handlers and delivery drivers is harder than ever in today‘s labor market. Warehouse positions that were long overlooked as "unskilled labor" are now recognized as essential front-line jobs, and workers are seeking compensation that reflects their value.
UPS, long known for treating workers well compared to some competitors, has still had to hike wages to attract and retain staff in this environment. The company‘s union contract ratified in 2018 included $4.15 per hour in wage increases over 5 years for part-time workers, for instance. In 2021, UPS pledged another $3 per hour in wage hikes for full-time drivers in some markets.
These pay raises are essential for keeping UPS‘s workforce stable and satisfaction high as package volumes remain elevated. But they also contribute to upward pressure on the prices customers pay to ship.
Pain at the Pump Drives Prices Up
If you‘ve winced filling up your gas tank lately, spare a thought for UPS. The carrier operates a massive fleet including over 125,000 package cars, vans, tractors, and motorcycles, along with nearly 600 planes. Keeping all those vehicles fueled up is one of UPS‘s biggest operating expenses.
As a policy, UPS adjusts its shipping rates periodically based on the market price of fuel. When gas gets more expensive, as it has in recent months, those increases get passed along to shippers. Given the size of UPS‘s fleet, even small upticks in fuel prices can have a big impact on the bottom line.
To put the fuel factor in perspective, consider these figures:
- UPS‘s worldwide fuel expense totaled $2.65 billion in 2020
- The company‘s fuel costs increased 32.5% in Q4 2021 compared to the same quarter in 2020
- UPS‘s domestic average cost per gallon of fuel rose 49.5% year-over-year in Q3 2021
With fuel prices hovering near record highs and geopolitical events creating an uncertain outlook, UPS‘s fuel costs are poised to keep climbing. For shippers, that means the fuel surcharges that inflate your UPS invoices are unlikely to ease anytime soon.
The Surcharge Squeeze
On top of the base rates UPS charges for its various shipping services, the company also tacks on a range of additional fees known as surcharges. These extra costs are applied for specific types of packages or delivery circumstances and can add up quickly.
Common UPS surcharges include:
- Residential surcharge: Applied to deliveries to homes vs. business addresses. Currently adds $4.85 to ground shipments and $5.75 to air shipments.
- Delivery area surcharge: Assessed on packages shipped to less accessible locations, like rural areas or remote zip codes. Fees vary based on zone.
- Additional handling surcharge: Added to packages that exceed UPS‘s standard size guidelines or otherwise require special handling. Starts at $3.50 per package.
- Large package surcharge: Charged on domestic packages with a length plus girth greater than 118 inches or exceeding 90 pounds. Can add $100 or more per package.
- Fuel surcharge: An extra fee that varies based on fuel prices, intended to offset UPS‘s costs from rising gas prices. As of April 2022, adds 15.25% to ground shipments and 19% to air shipments.
In recent years, UPS has steadily increased many of these surcharges as well as expanded their application. For instance, the additional handling surcharge rose from $10.85 in 2016 to $16 in 2021, a 48% jump. Peak season surcharges, traditionally only applied during the holiday rush, are now assessed over more of the calendar.
These mounting surcharges can dramatically inflate your overall shipping spend with UPS, especially if you frequently send large, heavy, or oddly-shaped items. Keeping a close eye on the current roster of surcharges is essential to avoid unpleasant billing surprises.
Zone Pricing: Distance Matters
Another key factor in determining your UPS shipping costs is how far your package has to travel. The farther the distance between origin and destination, the more you can expect to pay.
UPS uses a zone-based pricing model that divides the country into zones radiating out from the point where a shipment is sent from. Zones are numbered from 2 to 8, with higher numbers representing locations farther from the origin point.
Here‘s a quick breakdown of how UPS‘s zones are organized:
- Zone 2: 0-150 miles from origin
- Zone 3: 151-300 miles from origin
- Zone 4: 301-600 miles from origin
- Zone 5: 601-1000 miles from origin
- Zone 6: 1001-1400 miles from origin
- Zone 7: 1401-1800 miles from origin
- Zone 8: 1801+ miles from origin
As a general rule, the more zones a package has to cross, the higher the shipping charges will be. For instance, sending a 5 pound package through UPS Ground from New York to Philadelphia (Zone 2) would run you around $9. The same package going from New York to Los Angeles (Zone 8) would cost nearly twice as much at about $17.
The relationship between price and distance exists because the longer a package is in transit, the more resources UPS has to expend to move it. More miles means burning more fuel and requiring more man hours from drivers and warehouse staff. Those costs get baked into the zone-based pricing matrix.
Every Ounce Counts: UPS‘s Dimensional Weight Pricing
It‘s common knowledge that heavier packages cost more to ship than lighter ones. But UPS also considers another important aspect of your parcel when setting prices: its dimensions.
Since 2015, UPS has used a pricing approach called dimensional weight (or "dim weight") that takes into account the amount of space a package occupies in relation to its actual weight. Here‘s how it works:
UPS first calculates your box‘s dim weight by multiplying its length by width by height and dividing the total by 139 (for domestic shipments) or 139 (for international shipments). If the dim weight is greater than the actual scale weight, you‘re charged the dim weight price.
Let‘s look at a quick example. Say you‘re shipping a box that‘s 12" long, 12" wide and 12" tall with an actual weight of 8 pounds. Using the dim weight formula, that box would have a billable weight of 12 pounds (12 x 12 x 12 / 139 = 12.41) despite only weighing 8 pounds on the scale.
This approach is intended to account for all the space a parcel takes up on a truck or airplane, as UPS‘s profitability depends on maximizing cube space utilization in its vehicles. In practice, it means you‘ll often pay significantly more to ship large, low-density packages compared to smaller, more compact ones, even if they weigh the same.
Understanding how your box dimensions impact your UPS rates is key to making smart packaging choices. Shaving just a few inches off your parcel‘s size can make a big difference in your shipping spend.
Premium Services Come at a Premium
UPS offers several service tiers that let shippers select their desired delivery speed and arrival date. As you might expect, the faster the service, the more you‘ll pay for the privilege.
Here‘s a rundown of UPS‘s domestic service levels from slowest/cheapest to quickest/priciest:
- UPS Ground: 1-5 business days
- UPS 3 Day Select: 3 business days guaranteed
- UPS 2nd Day Air: 2 business days guaranteed
- UPS Next Day Air Saver: Next business day guaranteed by 3 p.m.
- UPS Next Day Air: Next business day guaranteed by 10:30 a.m.
- UPS Next Day Air Early: Next business day guaranteed by 8 a.m.
To illustrate the price differences, let‘s look at a real example. Shipping a 5 pound package from New York to Chicago would cost around $13 via UPS Ground with an estimated delivery window of 3 business days. Bumping up to UPS Next Day Air would get it there tomorrow, but would cost $106. That‘s over 8 times more expensive.
What accounts for that huge gap? Expedited services like Next Day Air often require packages to be flown rather than trucked, which is inherently pricier. UPS also has to maintain a sprawling network of planes, pilots, and logistics experts ready to move urgent packages at a moment‘s notice. Those fixed costs translate to higher prices.
The lesson for shippers is that speed comes at a steep cost with UPS. Choosing an expedited service can easily double or triple your base rate, so it‘s wise to be judicious about when that extra velocity is truly necessary.
The Price of Peace of Mind
One bright spot in UPS‘s sea of surcharges and premiums is that some valuable perks are included with your base shipping rates. Chief among them is automatic insurance for packages valued up to $100.
Here‘s how it works: if UPS loses or damages a package in transit, you‘re eligible for reimbursement of up to $100 of the item‘s value. You don‘t have to pay extra or declare that value upfront. It‘s a built-in safeguard.
While this is a reassuring protection, it‘s one that comes with costs for UPS. Providing included insurance requires maintaining claims staff to investigate cases and reserving funds to pay out reimbursements. Those expenses get rolled into the overall cost of UPS‘s services.
UPS also offers some useful features such as online tracking, which lets you monitor a package‘s journey from origin to destination. Again, what seems like a "free" perk actually requires a sophisticated logistics information system to enable. The price of these value-added bonuses is folded into your shipping fees.
As a shipper, it‘s important to recognize which UPS services you‘re paying for, either directly or indirectly. Weighing the costs of features like included insurance against the benefits can help you decide when UPS‘s price premium is justified.
Tips to Tame Your UPS Spend
While the overall trend of UPS price increases shows no signs of slowing, there are still some strategies savvy shippers can employ to keep costs in check. Here are a few of my top recommendations:
- Choose the right service level: Don‘t pay for speed you don‘t need. If a package doesn‘t require urgent delivery, opt for UPS Ground instead of costlier air services.
- Optimize your packaging: Using the smallest possible box for your items can help minimize dimensional weight charges. Avoid leaving too much empty space in parcels.
- Consolidate shipments: Combining multiple items into a single box where possible is usually cheaper than sending them separately.
- Consider alternative carriers: Compare UPS‘s rates with other options like FedEx and USPS, especially for lightweight or expedited shipments where they may offer lower prices.
- Negotiate discounts: If you ship high volumes with UPS, don‘t be afraid to push for a custom pricing agreement. You may be able to secure reduced rates or waived surcharges.
- Audit your invoices: Carefully review your UPS bills for incorrect charges, such as residential surcharges on commercial deliveries. Disputing errors can add up to major savings.
The Road Ahead for UPS Pricing
As we‘ve seen, a perfect storm of factors have conspired to make UPS a costlier shipping proposition than ever before. Between pandemic-fueled e-commerce growth, rising labor and fuel costs, and the company‘s increasingly complex pricing models, the pressure on UPS rates shows no signs of easing.
Looking ahead, I expect we‘ll continue to see UPS lean on tactics like peak surcharges to help manage volume surges and protect its margins. The company‘s in-house forecasters are projecting UPS volume to continue growing and reach 37.7 million packages per day by 2027. Increased fuel surcharges also seem inevitable as gasoline and jet fuel prices remain volatile.
For shippers, the key to navigating this challenging landscape is to arm yourself with knowledge. Understanding the key drivers behind UPS‘s climbing costs and which aspects of pricing you can control will be essential to executing a cost-effective shipping strategy.
It‘s also critical to explore your options. Few businesses can afford to ignore a carrier with the size and reach of UPS altogether, but diversifying your shipping mix with regional carriers or the Postal Service can provide crucial flexibility. Regularly comparing pricing and service offerings is a must.
Ultimately, while UPS‘s rising rates can feel daunting, I firmly believe that a strategic, informed approach to shipping can keep your costs manageable without sacrificing service. By optimizing your packaging, choosing the right delivery speeds for your needs, and staying on top of surcharges, you can continue to succeed in the fast-evolving shipping landscape.
Your partner in navigating the world of shipping,
[Your name] Retail and Logistics Consultant