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An Early Holiday Present from UPS!

UPS’ New Peak Surcharges and What it Means for You

Actually, the holiday present is for UPS and not for UPS’ customers.  We’ve all heard the rumblings for months and now we know what UPS has been planning regarding the imposition of new surcharges UPS calls “New Peak Charge.”

It’s been obvious for years that UPS’ shipping volumes spike significantly during peak holiday shipping periods.  During those peak shipping periods, UPS, (and FedEx for that matter), continuously flex their systems by adding additional equipment capacity and additional labor to handle the large volumes of additional packages in an effort to ensure on-time delivery of those holiday packages.  Now, UPS is planning to pass part of the cost, or all of those costs, (no one is really sure), on the backs of many of their most loyal customers.

The official word from UPS according to Alan Gershenson, UPS Chief Commercial Officer is that the additional charges are required to allow UPS to “continue to provide best-in-class value to customers while offsetting some of the additional expenses incurred during significant volume surges.”  “We’re focused on helping our customers achieve success during some of their most important selling seasons.”  “Our goal is to help every customer obtain the delivery capacity they need, combined with predictable and timely service they count on from UPS.”  Certainly sounds logical to us; who wouldn’t want those assurances?  However, it’s not the assurances their loyal customers will question, it’s the cost of those assurances that we’re sure is going to irk UPS’ customers.

While we agree with the philosophical aspect of these new surcharges, there may be a large price for UPS to pay.  For one thing, we haven’t heard from FedEx yet as to whether they will implement similar surcharges.  So, will UPS see a dilution of these peak season packages moving to FedEx?  And if so, how successful will FedEx be in delivering these packages on time during the peak holiday season?  After all, their systems are also severely challenged during these heavy shipping periods.  We’re fairly certain that USPS will not implement a similar peak season surcharge, so how many holiday packages will shift to USPS during the peak holiday shipping season; and how many of those packages will remain in the USPS system long after the peak season is over?  Only time will tell.

UPS has announced that they will also be adding additional peak season surcharges for residential delivered packages originating within the 48 contiguous states to destinations within Alaska, Hawaii or Puerto Rico.  These surcharges are due to be published on or before August 1, 2017 according to UPS.

Here is an overview of the new peak season surcharges for each package addressed to a location that is a home, including a business operating out of a home.  Surcharges apply to packages with origin and destination within the 48 contiguous states and packages with Alaska and Hawaii origin.

UPS Ground, Including Ground with Freight Pricing

November 19th through December 2nd, 2017 – $0.27 per package

December 17th through December 23rd, 2017 – $0.27 per package

UPS Next Day Air Early, UPS Next Day Air, UPS Next Day Air Saver

December 17th through December 23rd, 2017 – $0.81 per package

UPS 2nd Day Air AM, UPS 2nd Day Air, UPS 3 Day Select

December 17th through December 23rd, 2017 – $0.97 per package

Peak Surcharge Applied to Large Packages for ALL Service Levels to ALL Domestic Destinations

A Peak Surcharge will apply to packages with length plus girth (2X width + 2X height combined over 130 inches.

November 19th through December 23rd, 2017 – $24.00 per package

Note:  This surcharge is not restricted to residential deliveries

Peak Surcharge Applied to Over Maximum Limits Packages for ALL Service Levels to ALL Domestic Destinations

A Peak Surcharge will apply to packages with an actual weight of more than 150 lbs. or packages that exceed 108 inches in length, or that exceed 165 inches in length plus girth combined.

November 19th through December 23rd 2017 – $249.00 per package

To give you a sense of the magnitude of these new Peak Surcharges for Large Packages and Over Maximum Limit Packages, the following is an example of an actual shipment of carpet under UPS’ current pricing for a large carpet retailer.  We added the “new” costs that will apply once these new Peak Surcharges become applicable.

Dim final final

In the example above, a shipment of one roll of carpet was tendered to UPS as an 11 pound package for a residential delivery. This shipper thankfully has a negotiated Dimensional Weight Divisor of 194.  After UPS received the shipment, a shipping charge correction was issued, because while the shipment’s actual weight was only 11 pounds, under UPS’ Dimensional Weight Pricing provisions, the weight was changed to 321 pounds, changing the shipment charge from $8.91 to an additional $91.12, plus the current $70.00 Large Package Surcharge and $150.00 for Over Maximum Size packages.

Once the new Peak Surcharges become applicable this shipment will also be subject to a Peak Residential Surcharge of $.027; a Peak Large Package Surcharge of $24.00 and a Peak Over Maximum Size Surcharge of $249.00, making the new charges 83% higher than the current shipment cost.  Just think of the impact these new surcharges will have on all businesses that ship Large Packages and Over Maximum Packages.  UPS is counting on these packages shifting to their UPS Freight trucking division and getting them out of the parcel operations all together and these additional fees will certainly make that a reality.

But wait, that’s not all, UPS’ customers who import goods into the US will also be dealing with Peak Surcharges as detailed below.

United States Import Peak Surcharges

Packages imported to the US in designated international lanes will be subject to a Peak Surcharge during specified Peak Periods.  UPS advises they will provide the applicable lanes, Peak Surcharges and Peak Periods which will be published on the UPS website on or before September 1, 2017.  UPS also advises that these import surcharges will be “updated from time to time as applicable lanes, peak periods and/or Peak Surcharges change.”

The message for UPS shippers in so far as imports are concerned is that these Peak Season Surcharges will apparently be changing on a regular basis causing havoc for shippers trying to budget their import freight costs.

Overall UPS’ message to their shipper customers in establishing these new Peak Surcharges is that UPS is no longer willing to bear all of the costs for increased peak shipping volumes.  One question we have is, with the assessment of these additional fees, does UPS expect to be more successful in delivering holiday merchandise on time, or is this just a way of improving their revenues.  We’ll let you be the judge!

UPS’ shipper customers need to understand it’s time to thoroughly analyze the financial impact these surcharges will have on their freight budgets.  We’re sure many shippers are not going to take these increases sitting down.  What impact will these surcharges have on their customer order and delivery commitments of holiday merchandise?  How much product will now be diverted to retail store deliveries for customer pick up to avoid residential deliveries, something UPS would obviously be happy to see as a new and emerging trend.  If you’re a retailer and you haven’t thought about these Peak Surcharge issues yet, it’s time to put your thinking cap on and decide what options are available to mitigate these additional costs.

 

 

 

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The Impact The Panama Canal Expansion Will Have On Shippers

The opening of the expanded Panama Canal, originally planned for 2014, is now set for next April. Workers are currently implanting the third set of 22-story lock gates that will accommodate what are called the Post-Panamax vessels, massive ships carrying up to 14,000 TEU container equivalents of freight. Even more expansion may be in store in the future. Earlier this spring, the Panama Canal Authority revealed it’s studying the possibility of adding a fourth set of locks which would accommodate an even newer generation of ships carrying 20,000 TEU container equivalents – in other words, Post-Post-Panamax vessels.

Racing to keep up with how this will play out in the world, logistics service providers and government officials across the globe quickly announced dozens of supply-chain infrastructure expansion projects across North America as well as other parts of the world. Ports across the Southeast and the Gulf Coast anticipate receiving the biggest direct impact. The ports of Miami, Baltimore, Charleston, Jacksonville and Philadelphia have long been digging, dredging and building to accommodate the larger Post-Panamax ships.

The Port Authority of New York and New Jersey plans on expanding capacity by raising the Bayonne Bridge. Georgia and South Carolina ports are cooperating on developing the new Jasper Ocean Terminal, a $500 million project that will handle 7 million cargo containers each year.

Ports are not the only platforms to be effected. The Panama Canal expansion will exert enormous impact on all forms of intermodal transit. Even before the canal officially opens, major infrastructure upgrades are underway at various inland locations. Atlanta, Chicago and Columbus are getting ready to handle much more traffic, as is Dallas, another non-port city. Rail operators, trucking companies and even airlines have been investing in infrastructure improvements in anticipation of Post-Panamax.

Some studies done on the impact of the expansion, including an often-cited report by Cushman and Wakefield, project a significant impact on intermodal transit. Rail and maritime transport, usually lower mile-for-mile than trucking or air, may also absorb substantial new business as shippers look to minimize their trans-shipment cost exposure.

Not everyone thinks the Panama Canal expansion will be “the greatest thing since slice bread” however. A report back in 2014 by Allianz Global Corporate and Specialty (AGCS) highlights certain risks that are inherent with the expansion in their report entitled “Panama Canal 100: Shipping Safety and Future Risks.”

In that report, Allianz points to the following risk factors:

  • Doubling of traffic through the Canal will increase the value of insured goods moving through the canal by approximately $1 Billion per day
  • General concerns about the increased size of the vessels moving through the Canal resulting in potential increased losses
  • Potential delays at US ports due to the mere size of these larger ships with the potential of interruptions in business; can you say “West Coast Port slowdown?”
  • Potential blockages in an already congested shipping environment
  • Estimates of 12-14 larger vessels passing through the canal on a daily basis, equating to 4750 additional ships per year

The reality is that with these larger ships, larger issues and concerns are definitely a possibility.

To move from what could be termed “negative” impacts of the widening of the Panama Canal, transportation and logistics consultants like me are busy scrutinizing the canal expansion from the perspective of transportation costs. It’s still too early to talk numbers, but I think overall shippers will see reduced costs per unit, reflecting obvious economies of scale. Shippers who can tolerate all-water routings of up to four weeks can anticipate the biggest savings, provided vessel operators resist taking advantage of their shipper customers by hiking up rates.

I also expect that some savvy entrepreneurs will introduce a few new supply-chain solutions based on the new economies of scale. There might be real value there too, we’ll just have to wait and see. Speaking of potential “real” improvements, wouldn’t it be great if someone could permanently fix the chassis situation at all ports; we can dream can’t we?

Expanding the Panama Canal is going to shake up the world of logistics. Freight volume will increase significantly while transit times should decrease. Shippers who look carefully for various savings opportunities will surely find them. Personally, I’m looking forward to the new Panama Canal opening and the challenges it will bring!

Tony

Office of Mikulski

HOS Suspension Is Now Included in the $1 Trillion Omnibus Bill

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