UPS Defends Increased Peak Season Surcharges Amid Condensed Holiday Shipping Period
UPS Prepares for Record Holiday Season with Increased Peak Surcharges
UPS CEO Carol Tomé recently addressed the company's decision to implement higher peak season surcharges for the upcoming holiday period, citing a shorter holiday shipping window and anticipated volume growth. The later-than-usual Thanksgiving date, November 28, means fewer days for deliveries between Black Friday and Christmas, marking the most condensed holiday shipping season since 2019.
Justification for Higher Surcharges
Tomé highlighted that UPS expects December 18 to witness "the highest volume ever in our network." This expected surge in demand has led UPS to maintain that the increased surcharges are necessary to manage the influx of parcels and ensure timely deliveries. "We think that the prices are going to stick because of what the environment is telling us from a demand perspective," Tomé said during the earnings call.
Breakdown of 2024 Peak Season Surcharges
Despite a trend of shippers seeking lower-cost delivery options, UPS's peak season surcharges for 2024 are higher compared to previous years. The surcharges, which vary by date, will peak between November 24 and December 28.
Effective Surcharge Dates:
September 29: Surcharges for bulky and hard-to-handle packages begin.
October 27: Demand surcharges for UPS Ground Residential, Air, and SurePost packages take effect.
January 18, 2025: All surcharges end.
Industry Reactions
Jonathan Hessney, founder of Onrout, described the dual demand surcharges as a "double whammy" that will increase costs for customers who do not take mitigating actions. He noted that UPS provided more time than usual to prepare by releasing the surcharge information in July, allowing shippers time to explore alternatives or negotiate discounts.
Wolfe Research Managing Director Scott Group expressed surprise at the size and magnitude of the surcharges during UPS’s earnings call. However, Tomé justified the pricing, emphasizing the significant volume UPS anticipates handling during the peak season.
UPS's Strategy and Competitor Outlook
UPS is preparing for a surge in volume from new e-commerce customers using its SurePost service, CFO Brian Dykes stated. Additionally, the company's capacity will be further tested by its new air cargo contract with the U.S. Postal Service, which is expected to be fully onboarded before the holidays.
FedEx, UPS's rival, is also confident in its peak season surcharge strategy. EVP and Chief Customer Officer Brie Carere indicated that FedEx has positioned itself to capture additional revenue from peak season surcharges, although the company had not yet released its 2024 peak season surcharges as of late July.
Conclusion
As the holiday season approaches, UPS's strategic implementation of higher peak surcharges is designed to manage the expected record volume and ensure efficient delivery operations. While the increased fees may pose challenges for shippers, UPS is committed to maintaining service quality and meeting the heightened demand effectively.
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