UPS Announces 2021 General Rate Increase: Key Facets for Domestic Shippers

Effective December 27, 2020, UPS Ground, Air, and International services will increase by an announced average of 4.9% -- matching both the UPS 2019-2020 increase and the FedEx 2021 GRI announced last month. While this is the average price hike, shippers will be affected differently based on their shipping profile.

The GRI was published shortly following the UPS Q3 earnings call. Before diving into the GRI, it is worth understanding the message new-CEO Carol Tomé continues to reinforce about UPS priorities. It can be encapsulated in two quotes from the call (emphasis mine):

“The final piece of our strategy comes down to being better not bigger. Now that doesn't mean UPS is not going to grow because we are. It means that we will lean into growth from the right opportunities like SMBs, international, global freight forwarding, and other high-yielding sectors, and we will grow from our revenue quality initiatives. We are on a journey to optimize the volume that flows through our network.”

The second quote comes in the answer to an investor question about de-marketing large volume shippers that don’t meet margin goals:

“When you have tight capacity, it also means that prices tighten. And as prices tighten there is a shift in certain customers who are more price-sensitive than others. We're okay with that if we're losing non-nutritive sales. We're okay with that. It's not about volume share growth. It's about value share growth. So that's how we'd like you to think about us at least in the short-term value share growth.”

This context aligns to what UPS is communicating in its latest pricing adjustments. Here are the high-level impacts:

1. UPS continues to focus on margin improvements for low weight shipments, assigning the biggest increases to the lightest packages in most service levels.

2. Longer zone Air services will take larger increases than Ground and lower Air zones. Shippers typically harness Air services for packages that must travel a longer distance to meet service commitments. As a carrier, UPS has cited the higher cost to serve and will capitalize on this need to utilize Air for zones 7 and 8 especially.

3. Minimums are going up the most on slowest services. The rate of zone 2, 1lb shipments within each service hold extra significance because this is what minimum net charges are based on. Continuing the trend of focus on low weight ground packages, UPS has increased the minimum charge on Ground packages by 6.4%.

For example: an e-commerce shipper with a 30% 1-5lb discount shipping a 4lb, zone 5 package would take a 7% increase ($0.60 per package) on that shipment’s transportation fee.

4. Delivery Area Surcharge ZIP Code Changes. More ZIP Codes than ever will be eligible for DAS surcharges:

A complete list can be found here.

5. Moving into surcharges, UPS continues to crack down on undesirable larger packages.

a. Effective January 10, 2021, an Additional Handling charge will be applied to any package with its length plus girth combined exceeding 105 inches.

b. Effective April 11, 2021, Additional Handling and Large Package Surcharge rates for non-Hundredweight Service packages will differ by zone. (This will apply to Hundredweight Service packages effective July 11, 2021).

Details on zone-based pricing for these surcharges have not yet been published.

6. Nearly all surcharges are increasing by more than 4.9%

7. There will be more increase announcements to come. Surepost increases were not included but are sure to come soon.

How will this affect individual shippers? The general rate increase will affect some shippers more than others, but everyone can count on some degree of higher costs. This year’s announcement particularly targets low weight Ground packages and high zone Air packages. Shippers with packages that qualify for Large Package and Additional Handling surcharges will continue to get “special treatment” for sending these packages via the UPS parcel network.

Matt Weickert is Senior Consultant for Shipware, a shipping consulting firm that specializes in cost reduction and recovery services. Prior to his work at Shipware, Matt advised the world’s largest shippers like Walmart, Office Depot, Costco, and Apple in strategic logistics analyses and contract negotiations. He earned a B.S. in Industrial Engineering from Mississippi State University and runs a lot.

UPS Announces 2021 General Rate Increase: Key Facets for Domestic Shippers

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