Lucy Keller, the owner of two Huntington Beach, California companies that sell volleyball and wrestling equipment, thought she was spending way too much on delivery charges. And that was before she caught wind of an extra fee that FedEx started tacking onto every air shipment to a residential address beginning January 7. The move inflated the cost of certain deliveries by almost 20% on top of an increase in basic shipping charges.
Im just trying to keep my head above water, Keller says, and the add-on charges are just killing us.
Whether ordering spare parts from a supplier or sending cookies to summer camp, it is time to start reading the fine print on your delivery bill. Package carriers rang in the new year by quietly hitting millions of customers with a mushrooming list of accessorial fees that dont fall under normal delivery pricing but are climbing at a much faster rate.
Carriers push to raise fees began several years ago but hit the big time in January of this year when FedEx, UPS and Airborne started charging $1.10 to $1.35 extra for each residential air delivery. UPS and Airborne also followed the eight-month-old FedEx practice of imposing a separate fee for air shipments to residences that are considered out of the way. (Such surcharges already were widespread for ground deliveries.) The result of the new air-delivery fees: a double whammy that increased the cost of some shipments by close to 40%. Worst hit were catalog and Internet merchants until they passed the increases onto their customers.
Other less frequent add-ons also soared. Atlanta-based UPS, which makes twice as many deliveries as FedEx and Airborne combined, doubled its $5 charge for customers who don't put their account numbers on their delivery slips. Its hazardous materials surcharge on ground shipments jumped 18% to $20. And the company tacked on a new 25 fee for certain specially printed return labels. The total number of items on its accessorial list climbed to 34 from 30.
With delivery volumes down as the economy slumps, parcel carriers need to find extra revenue wherever they can. Because increases tend to coincide with the new year and are standard practice in the industry, customers don't charge collusion, but they do complain that one shipping company's new fees and basic shipping rates will invariably be copied by rivals. The only alternative is the U.S. Postal Service, which has fewer extra fees but doesn't match the delivery guarantees or sophisticated package-tracking capabilities offered by private companies.
For Keller, delivery charges ate up 15% of last year's revenue of $5 million at Volleyball Plus Inc. and Leisure One Inc. The latest fee increases on residential and rural deliveries mean she probably can't afford to continue offering free two-day shipping to customers who need to exchange volleyball shoes or wrestling singlets that don't fit. It is one of the few things that has given us a competitive advantage, she says of the free deliveries. In order to stay in business, we have to make a little money, and it is just getting harder and harder.
The extra fees are stealth income raisers, notes Dwight Sigworth, executive vice president of AFMS Transportation Management Group LLC, Portland, Oregon, which helps companies negotiate delivery contracts. People will negotiate forever over . . . their rates, but it is these fees that are increasing the profitability of the carriers.
The delivery companies say the explosion of new and higher fees isn't part of a strategy to boost their bottom lines. We're trying to target the increases to things that are extra hard and extra costly to do, says James E. Webb, senior vice president of strategic marketing, planning and analysis at FedEx, based in Memphis, Tennessee. Nobody is going to thank you for raising rates, but they know this approach makes sense.
Residential deliveries, for example, are among the costliest to make since houses and apartments usually are scattered more widely than office buildings. Residential recipients sometimes aren't at home, forcing the driver to make another delivery stop. Our real intent is to cover the costs associated with delivering the package, explains Rick Campana, a UPS vice president of Marketing.
Satish Jindel, a transportation consultant at SJ Consulting Group Inc. in Pittsburgh, says carriers are able to crack down on shippers because of improvements to their vast package-information systems, which can zero in on the revenue and costs associated with specific deliveries.
A UPS spokesman says the company aims to make a profit on value-added services such as collect-on-delivery shipments, which cost an extra $6, but he won't disclose the size of that profit.
UPS imposes a $10 penalty on any air shipment that can't be delivered because its address is wrong, a figure that is unchanged from last year but up 150% since 1997. How can UPS tell the address is wrong? It buys change-of-address data from the Postal Service for 20 per corrected address. A UPS spokesman says the company's address-change expenses also include the time it takes drivers and package-facility workers to steer packages to their correct destination, often by scouring phone books or calling customers.
It is too soon to tell whether the latest round of increases will cause more shipments to be steered to the post office, which, despite less reliable service and two rate increases in 2001, still delivers Priority Mail packages in as little as two or three days. Lands End Inc. switched to a merchandise-return program offered by the post office after rates for a similar UPS service surged. Luckily for the Dodgeville, Wisconsin, catalog and Internet retailer, it pays an essentially flat rate on two-day deliveries that is locked in for a couple more years, says Phil Schaecher, the company's senior vice president of Operations.
We don't think we'll lose business to the Postal Service, says Mr. Campana of UPS.
Rick Brooks is a staff reporter of The Wall Street Journal. This article appeared in the publication on January 3, 2002.
