UPS Shippers: Read the Fine Print!
Parcel shippers, be forewarned. Recent modifications to United Parcel Service (UPS) contracts can potentially increase shipper’s costs significantly.
If you are like most shippers, you’ve negotiated incentives off UPS’s prevailing “published” or “list” pricing. For years, UPS used a single list rate for volume shippers, and all incentives applied to an established set of rates. Not anymore.
UPS now has three sets of “published” rates: 1) “Daily Rates”; 2) “Standard Rates”; and 3) “RetailRates”:
- 2011 Daily Rate – Applies to shippers that have an existing customer account prior to January 3, 2011 that provides for Daily Rates, or UPS Scheduled Pickup service implemented prior to January 3, 2011. The Daily Rates are the list rates used by UPS for years.
- 2011 Standard List Rate – New in 2011! Applies to shippers that have a customized agreement with UPS that provides for Standard List Rates, or a UPS Scheduled Pickup account established on or after January 3, 2011.
- 2011 Retail Rate – Applies to shippers that: Do not receive UPS Scheduled Pickup service; ship from a UPS retail location, such as The UPS Store® or UPS Customer Center; or ship infrequently with a UPS account number or payment card.
Daily Rates versus Standard Rates
While the Ground rates are the same, the new Standard rates established in 2011 represent a significant rate increase for Air services over the traditional Daily rates.
How much higher? 6.2% average increase for Next Day Air (NDA); 12.9% higher for Next Day Air Saver (NDS); 10.2% higher for 2 Day Air (2DA); and a whopping 30.8% higher for 3 Day Air (3DA)!
What’s UPS’s rational for the new Standard tariff? To better match FedEx published rates. The new UPS Standard rates are nearly identical to FedEx published rates (with a few minor exceptions).
New UPS customers can expect the new, higher, Standard rates, especially when competing with FedEx Express services. Some industry analysts expect UPS to convert many existing accounts upon contract renewal, from Daily to Standard rates, and that Standard rates will eventually become the de facto published rates for all UPS shippers.
Daily Rates versus Retail Rates
The difference between the UPS Daily and Retail rates reflect an even more dramatic price difference:
14.3% average increase for NDA; 24.5% higher for NDS; 27.4% higher for 2DA; 35.8% higher for 3DA; and 44.2% higher for Ground.
Changes to UPS Deferred Threshold Agreements
Shippers should also carefully review Deferred Tier Threshold Agreements, more popularly known as “Quarterly Rebates”.
The Deferred Tier Threshold in a quarterly UPS incentive program that rebates back to the shipper a negotiated percentage of net transportation charges for the period. The benefit to shippers is additional discounts in the form of a quarterly payment.
The program works well for some shippers, especially those that charge back shipping costs to their customers, helping to make shipping a profit center.
The benefit to UPS, of course, is greater customer retention. Just as shippers are often leery to defer some shipments to alternate carriers for fear of losing UPS incentives, rebate payments are an effective way to keep shippers loyal to UPS.
However, for the past year or so, UPS added five words to these agreements that can strip out a lot of the incentive: “subject to all applicable minimums”.
As an example, let’s say a shipper has a 6% deferred tier incentive and spent $100,000 in net transportation charges (freight charges only, does not include fuel surcharges or other accessorial charges). In the past, the rebate would have been $6,000.
Today’s agreements strip out minimum charge revenue. If a shipment is subject to the 2011 Ground Minimum Charge of $5.17 (Zone 2, 1 Pound rate), it’s excluded from rebate consideration. If half of all charges are minimum charges, the eligible revenue and subsequent rebate are also halved. The shipper with the $100,000 quarterly expenditures would only receive a $3,000 rebate.
UPS won’t necessarily point these changes out to you. Be sure to review all agreements carefully and ask questions!