UPS Targets Discount Sharing With New Fee on Retailers
Company to rein in cybershopping sites that share generous discounts with third-party merchants
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Atlanta-based UPS announced a sweeping round of rate increases on Thursday. Photo: Justin Sullivan/Getty Images
The Atlanta shipping company announced sweeping rate increases on Thursday, including the second boost this year to its fuel surcharge and a near-doubling—to $110 from $57.50—of the fee to deliver oversize items, such as mattresses and patio furniture. Those changes will kick in Nov. 2, just in time for the holidays, in a partial remedy for the past two years when UPS overspent as shoppers turned online to order.
In addition, UPS said that beginning next year it would start charging for third-party billing. The move is aimed at reining in the practice among many online marketplaces that allow merchants who sell goods through their sites to use their UPS discounts by printing shipping labels straight from their accounts.
“The number of transactions that are going online for third-party arranged shipments has increased to the point where it’s appropriate for us to establish a fee,” a UPS spokesman said. The new third-party surcharge of 2.5% of the total price of a package helps assure UPS is properly compensated for its services, he added.
This new fee also will affect retailers that allow vendors to use the discounts to ship directly to consumers—skipping the middleman—or direct goods to their own shelves for restocking.
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Currently, the biggest retailers get shipping discounts with UPS and FedEx Corp. of as much as 60% off list rates based on the volume they ship, according to industry consultants.
That discount typically is given under the assumption that packages would be consolidated and come in bulk from distribution centers.
Shipping 100 discounted boxes of shoes via ground from Atlanta to New York could cost third-party shippers an extra $20 after the new fee goes into effect.
Both UPS and FedEx are grappling with the challenges of fast-growing but lower-margin e-commerce. Across the board, rates and other charges at UPS and FedEx will go up about 5% next year.
Separately, the U.S. Postal Service on Friday said it would seek to increase its commercial package prices by an average of 9.5% and in the double digits for its bread-and-butter business of packages weighing less than a pound.
USPS is asking its regulators for permission to raise prices a year after it aggressively slashed prices by as much as 58% on some Priority Mail packages for customers shipping at least 50,000 parcels a year in an effort to better compete with UPS and FedEx.
Any price increases for deliveries are likely to be passed along to consumers—if not in higher shipping costs than with higher prices at checkout, shipping-industry consultants say.
“At some point some of the charge is going to get pushed back to the purchaser of the goods,” said John Haber, chief executive of Spend Management Experts.
Fuel surcharges are another way to offset the higher cost of deliveries. FedEx late last month raised its fuel surcharge index for the second time this year, citing the increase in residential deliveries and bigger packages. Both companies’ fuel costs were down about 35% in their most recent quarters.
Fuel-surcharge revenue “has actually declined at a rate faster than our reduction in actual fuel costs on a year-to-date basis,” the UPS spokesman said. The company “is making an adjustment to correct that imbalance.”
