I often hear clients complain about the similarities between UPS’ and FedEx’s rates. Their concern is that UPS and FedEx appear to have colluded to set rates and are somehow conspiring against shippers’ interests. It seems to me there are really three issues here:
    • Do carriers collude to set rates?
    • Are the resulting rate increases too high?
    • Assuming there is collusion, does it damage shippers’ interests?

    Let’s first examine where UPS’ and FedEx’s rate align:
    Continental US Ground Rates
    UPS’ and FedEx’s Domestic Ground Service Guide rates are nearly identical. They are, in fact, identical up to 70 lbs., at which point UPS’ rates are $0.05 higher up to 150 lbs. This is true for both commercial and residential deliveries. Just as importantly, their domestic zone structure is very similar. While not strictly identical, re-zoning a data set under both carriers’ zone logic typically results in disparities of less than 1%.

    Continental US Air/Express Rates 
    While UPS’ and FedEx’s domestic air zone structures (being the same as Ground) are very similar, the Service Guide rates differ widely for Air/Express. For example, totaling the rates for the 1-150 lb. weights (including letters) for zones 2-8 for each of the primary service levels provides the following results:
    SERVICE         UPS TOTAL       FDX TOTAL       DELTA %     DELTA
    NDA / PO          $290,929             $308,811           -$17,882        -6.1%
    NDS / SO          $278,845              $290,441          -$11,597        -4.2%
    2-DAY / E2        $165,249             $174,106             -$8,857        -5.4%
    3-DAY / XS       $108,964              $130,255           -$21,291       -19.5%

    We used this somewhat high-level approach so as not to undervalue the extreme rate differences at the high end of the scale.

    It doesn’t take long to see that FedEx’s list rates are considerably higher than UPS’. This is true even if you look at smaller weight and/or zone ranges. This is not necessarily a shortfall of FedEx, as they typically discount these service levels more aggressively to compensate; the point is the list rates are different. 

    Export / Import zones and rates could not be more divergent. The zone structures are completely different, as are service offerings (UPS has three air services to most countries while FedEx has only two) and rates.

    Accessorials / Surcharges
    This is an interesting area. While space doesn’t allow us to review every accessorial and surcharge, let’s hit the highlights.
               Ground Resi   Air Resi   Comm DAS/EAS   Resi DAS    Resi EAS   AHS     LPS    Add Corr
    UPS     $2.45         $2.75            $1.85             $2.75         $3.00   $8.00 $50.00 $11.00
    FedEx $2.45          $2.75            $1.85             $2.75         $3.00   $8.00 $50.00 $11.00

    Both UPS and FedEx adjusted their Domestic DIM Divisor from 194 to 166 and the Export/Import DIM Divisor from 166 to 139 on January 3, 2011 . Both carriers already used the same DIM logic and had the same DIM threshold of three cubic feet for Ground packages.

    To be frank, if you’re primarily a domestic shipper the differences are few. Obviously, the air rates are significantly different. There are some relatively minor differences on how Ground Hundredweight/Multiweight logic is applied. Some of the lesser-used accessorials and surcharges vary across carriers. Weekly pickup charges are set up very differently. But unless you have a large number of pickup locations, this is unlikely to impact your net cost to a great degree.

    At this point it seems clear that these similarities are more than just coincidence. But is it collusion? I would make the argument that it almost doesn’t matter. Whether the carriers have clandestine discussions concerning pricing prior to each year’s GRI, or whether it’s a case of follow the leader, the result is the same. What matters is the scale and scope of the GRI changes. The carriers announced GRIs this year of 4.9%, on top of egregious changes to the DIM logic, substantial increases on most major accessorials and surcharges, and the list goes on and on. At a time when U.S. inflation is measuring at 2.6%, this seems heavy-handed to say the least.

    The concept of homogenous base rates does have some attraction. It certainly makes comparison of pricing agreements easier (though not easy). However, when carriers leverage their arguably duopolistic power to not only make their prices homogenous, but to blatantly increase prices above what would be possible if sufficient competition were present in the market is another matter entirely.

    The mega-shippers in the market have the resources and the leverage to negotiate away most of the impact of the carriers’ newfound audacity. But smaller shippers continue to get squeezed; to say nothing of the individual shipper that has the misfortune of wandering into a UPS Store or FedEx Office location. Shippers need to be aware of the changes the carriers are making and of the increasingly aggressive positions they are taking in the market. Forewarned is forearmed - in a two-carrier world, shippers need all the ammunition they can get.