FDX - UPS Shipping Rate Changes
 

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UPS May Follow FedEx Pricing Changes for Revenue Gain

United Parcel Service Inc. (UPS) may find find FedEx Corp. (FDX) new pricing rules too tempting to pass up.

As FedEx prepares to start charging for ground-shipped packages by size, not just weight, the promise of $350 million in extra revenue could be compelling enough to spur UPS to copy that approach, said Kevin Sterling, a BB&T Capital Markets analyst.

UPS said it's continually evaluating its policies.

"History tells you that when one changes prices, the other follows," Sterling said yesterday in an interview about the prospects for Atlanta-based UPS joining FedEx with a different rate structure.

FedEx said May 2 it's moving to dimensional-weight pricing in 2015 at its Ground business, matching the policy at its Express unit.

Shipments of e-commerce purchases will be among those affected as size becomes part of the rate calculations, buoying FedEx as shoppers go online to order everything from shoes to household supplies.

In a note to investors, Sterling gave an example of how rates would rise for a box of paper towels.

Under FedEx's pricing, a 3-pound (1.4-kilogram) box that's 17 inches (43 centimeters) on a side would be charged as if it weighed 30 pounds, wrote Sterling, who is based in Richmond, Virginia.

UPS isn'tcommenting on whether a similar change is in the works, said Andy McGowan, a spokesman.

The company continually evaluates our policies to remain competitive in the industry, he said.

Income Estimate

FedEx Ground's shift will boost operating income by more than $180 million a year, Sterling estimated.

That assumes shippers won't modify package sizes to reduce the impact of new rates.

Also, many major shippers would negotiate their own rates lower than FedEx's published prices, Sterling said.

UPS's benefit would be larger because its ground division is larger than that of Memphis, Tennessee-based FedEx, according to Sterling.

UPS is No. 1 in the world in package shipping, while FedEx operates the world's biggest cargo airline.

We felt like we weren't receiving the correct compensation for the services we were providing,said Jess Bunn, a FedEx spokesman.

We announced it now so customers would have adequate notice for their planning purposes.

The change also makes pricing consistent across FedEx Ground and FedEx Express, he said.

He declined to comment on potential increased revenue from the switch.

Consumer Shipments

Small packages shipped from businesses to consumers make up almost all the volume handled by FedEx's SmartPost unit, and 30 percent to 40 percent of total volume at FedEx Ground, said David Vernon, an analyst with Sanford C. Bernstein & Co. in New York.

SmartPost specializes in handling such low-weight parcels, with the last mile delivery done by the U.S. Postal Service.

You want to make sure you're getting paid for the space you use on the trailer,Vernon said in an interview.

Space is valuable.

The shift in pricing all FedEx Ground packages by size amounts to a rate increase, he said, and is likely to push some customers to switch from Ground to SmartPost or possibly to competitors like UPS or the U.S. Postal Service.

While some customers may be lost, it will be better for FedEx Ground to not have lower-weight, high-cost packages in its network, said Vernon, who rates the company market perform, the equivalent to a hold rating.

Sterling has a hold recommendation on both UPS and FedEx.

It costs FedEx Ground more to make residential deliveries than SmartPost because of its partnership with the postal service, which Vernon said has the lowest expense to drop parcels at homes.

UPS has a similar product named SurePost.

FedEx probably will see a decline in revenue that will offset some of the price increase, and also will have the added expense of handling the packages more to collect the dimensional pricing data, Vernon said.

And then another....

Why UPS Might Not Match FedEx's Higher Package Prices

Now that FedEx has announced it will charge extra for larger packages, the cheap delivery that has become standard for online shopping is coming to an end, right?

That's what shipping pundits would have us believe.

They note that FedEx and UPS always move in lockstep on pricing.

It's almost a foregone conclusion,Rob Martinez, president of shipping strategy consultant Shipware, told the Wall Street Journal.

They have a history of hitting each other like prizefighters back and forth.

But what if that's not the case this time?

UPS always has its eye on FedEx.

Then again, it also has to worry about Amazon.com, which is increasingly driving the online-shipping business.

The e-commerce giant is no longer simply a user of FedEx and UPS; it has become a competitor, too.

Last month the Wall Street Journal reported Amazon had quietly launched a same-day delivery service in San Francisco, New York, and Los Angeles.

And on Thursday, Amazon announced it's expanding Sunday delivery with the U.S. Postal Service in 15 additional cities, including Dallas, Houston, New Orleans, Philadelphia, and Cincinnati.

Here's what Mike Roth, the company's vice president for North American operations, had to say about it:

"So far, the most common items delivered on Sunday include baby supplies such as newborn apparel, books and toys. Sunday delivery is clearly crossing errands off the weekend to-do list. We know our Amazon customers love the convenience of everyday delivery, and we're excited to be offering Sunday delivery in more cities across the U.S."

The USPS, by the way, says it has no plans to adopt dimensional pricing now favored by FedEx, in which the packages are assessed by size and not just weight.

You can argue that Amazon's same-day and Sunday efforts don't matter to UPS and FedEx.

Neither company, after all, seems interested in making these services a large part of their business.

But same-day and Sunday deliveries are shifting an increasing number of packages out of the trucks and planes of both companies.

Amazon is growing at a faster speed than UPS and FedEx, who are responsible for shipping the majority of our packages, Amazon itself noted in a post on its website earlier this year.

At this rate Amazon cannot continue to rely solely on the solutions provided through traditional logistics providers.

To do so will limit our growth, increase costs and impede innovation in delivery capabilities.

Surely the shrewd people at UPS's headquarters in Atlanta read those words as closely as they did the news of FedEx's new pricing policy.

If so, they must be wondering whether it's worth moving in lockstep with FedEx this time.

I see nothing at all wrong with both companies doing a little "airline dance", after all, the public seems perfectly fine with shelling out Billions, that's Billions, with a B, for shipping their bags and changing their itinerary, when flying on commercial aircraft. Why should they have a problem paying for the space they use when shipping stuff. Look at this: U.S. airlines rack up billions in baggage and change fees - CNN.com

Don't ship paper towels, and fold your letters in half before shipping them.

FedEx Express has been "dim weighting" ("dimensional weighting" packages since it was just FedEx, i.e., before we bought and renamed RPS. We taught couriers to measure packages that they picked up, and they installed Dim Weight laser scanners in all of our sort facilities. I'm surprised FedEx Ground hasn't been doing the same thing all along.

I was also surprised yesterday when an item I purchased online that was shipped FedEx Ground did not show up at my house on the day it was promised. A little research revealed "Delayed Delivery Requested.". Oh, really?!?!? Well, I sure didn't request it, and I sure didn't approve any such request.

It feels like Express is carrying Ground, and Ground is besmirching our reputation.


Welcome to the Dim Weight club, 15 years late.






.

Express is carrying Ground until Ground is built up enough to start (continue) downsizing Express.