Feb. 1 2008 03:51 PM

During my travels around the United States, I am constantly asked about the way carriers price parcel transportation services. I dont profess to totally understand why they do what they do. But I know enough to say they do it because they can. They do it because it benefits them. And they do it because there is not enough of a competitive market to stop them.


Make no mistake about it, United Parcel Service is still the 500-pound gorilla in this arena. As they go, so go all other carriers. It has always been UPS that has introduced new ways to get their fingers in your pockets, and with virtually no reaction. What they want is what they get. Simply put: Its good to be the King!


Can you remember way back, well before 1999, when UPS went public with their shares? Can you remember the annual three percent across-the-board rate increases? It was a time void of surcharges, differentials and base and tier incentives? Obviously, those days are gone for good. The good ol days!


The truth of the matter is that UPS has morphed into a very different company than it was 20 years ago. First, it is now a publicly traded stock, so it is accountable to financial institutions and individual investors. All of a sudden, financial performance is explained quarterly, defended and forecasted for everyone to see and critique. Secondly, UPS has chosen to spend much of its profits on new business development and acquisitions. In fact, they have made more than 30 acquisitions since going public. Success comes with patience and time; Wall Street possesses neither. Add to that the fact that UPS is struggling with stubbornly high overall costs and diminishing growth prospects in its US package delivery business. Oh yeah, I almost forgot, D. Scott Davis took over for Michael Eskew the first of the year.


To address this dilemma, UPS has chosen to go back to the well; namely, their loyal customers, again and again for additional cash (in the form of higher rates) so they can pay for the new labor contract, pick up the slack for the recent UPS acquisitions that have been slow to accelerate profit growth and provide UPS with additional cash so it can please Wall Street and ignite its sluggish stock price. Youd do the same thing, wouldnt you? I mean, who wouldnt take the path of least resistance?

Actually, its become too easy. Take UPS press release, dated November 17, 2006, addressing the 2007 rate increase. It read, in part, The increase for air express and international shipments is based on a 6.9% increase in the base rate, less a two percent reduction in the current fuel surcharge. UPS uses the time-honored tactic of giving a little sugar (two percent reduction in the fuel surcharge) to help you swallow the 6.9% increase in base rates. As Paul Harvey would say, Now, the rest of the story. December 2006 Air fuel surcharge was 11.5%, and the surcharge was reduced in January 2007 to 9.5%. UPS kept its word. But what happened thereafter is the real story. UPS immediately increased it to 10.5% in February and continued its steady rise until it reached 17.5% in December. Talking about having your cake and eating it, too! Guess what, it did the same thing again for 2008. Easy, huh? Way, way too easy!


But your job isnt to make UPS whole with all of its lavish spending. Why should your five-pound package headed to Des Moines be responsible for what goes on in UPS LTL freight operation? Should you have to pay higher prices for something that will never impact you? Actually, you dont have a say in the matter unless you jump ship. But is that really any different?


No, my friend, without increased competition, you will continue to be in the dark about carrier pricing methods as you shell out more and more of your companys cash for a rather simple service. Its no secret that you can best level the playing field through effective negotiations. Even with that, Its good to be the King!


Joe Loughran is President of SmartTran, Inc. and an expert in small package pricing and carrier rate analysis. SmartTran is a transportation consulting company offering services in carrier rate negotiation, guarantee refund service and logistics planning for 12 years. SmartTrans management team has over 70 years of executive level experience in package transportation management. Joe can be reached by phone at 724-934-0626 or by e-mail at loughran@smarttran.com.