UPS United Parcel Service

By Paul Ziobro 

Holiday shopping is about to get more expensive.

United Parcel Service Inc. for the first time will tack a surcharge onto most online orders shipping around the Black Friday shopping weekend and the week before Christmas. It is the latest attempt by the large delivery company to recoup the massive increase in hiring and reserving extra trucks and planes during the busiest times.

The changes have retailers, which are struggling to adapt to a world where more people shop online, facing the prospect of either eating the higher charge or trying to recoup it by raising prices.

UPS on Monday said the surcharge will be 27 cents a package for all ground shipments to homes sent between Nov. 19 and Dec. 2, which includes some of the busiest online shopping days. Ground orders typically arrive within five days and are a heavily used shipping option during that time since shoppers don't necessarily need the items quickly.

The peak surcharges won't be in effect for the following two weeks, when shoppers typically take a pause, but they will return for the final holiday rush. From Dec. 17-23, UPS will charge an extra 27 cents for each ground shipment, 81 cents for next-day air and 97 cents for two- or three-day delivery.

The charges apply only to residential deliveries, so retailers and shoppers may be able to avoid the charges by getting orders shipped to stores, an option retailers have been pushing for the past few years with varying success.

UPS's main rival, FedEx Corp., doesn't have a surcharge during the holidays, although the two carriers often match each other on pricing moves. A spokesman for FedEx, which is scheduled to report earnings Tuesday, declined to comment.

Chief Commercial Officer Alan Gershenhorn said the per-package cost will only "marginally increase" during this time. As an example, UPS said a five-pound next-day air package from Atlanta to Philadelphia will cost 1% more to ship.

The surcharge, however, will provide a big haul to UPS, whose daily volume swells to more than 30 million in the weeks before Christmas versus more than 19 million on a normal day. Citi Research estimates the new surcharges will add $50 million in revenue and profit at UPS this year. The carrier declined to provide a projection on the revenue impact from the surcharges, but said it was already factored into its outlook.

Shippers may try to avoid the surcharge by offering more deals in October and early November, or by negotiating a discount. "The real objective for the surcharge is to motivate shippers to do their part in avoiding such volume increases," said Satish Jindel, president of ShipMatrix Inc., a software provider that analyzes shipping data.

UPS, FedEx and the U.S. Postal Service are all looking to recoup massive investments the are making in their delivery infrastructure to accommodate the surge of packages flowing into their networks in recent years as more people shop online. UPS is spending $4 billion this year alone as it automates more package-sorting hubs and opens new warehouses.

"They're just trying to make sure they're, at the margin, getting compensated for stretching their network," Sanford C. Bernstein analyst David Vernon said, adding that the carriers have the power to raise prices given how critical they have become to the period. "Without them, Christmas kind of doesn't happen."

UPS is looking at other ways to recoup costs during peak periods, so it isn't left holding the bag for the additional investments. Last month, UPS Chief Executive David Abney said the carrier is negotiating with retailers to help them pay for the any additional investments, even it goes unused.

On Monday, UPS said will also impose surcharges on all large packages above a certain threshold, which cost more to ship and sort, throughout the entire period. Those surcharges will be more onerous, tacking an additional $24 fee to a normal surcharge of $70 for a package weighing more than 150 pounds and over a certain size. UPS also will charge a peak surcharge of $249 per package on the largest packages, on top of a $150 fee for such "overmax" packages.

The company is encouraging shippers to instead send such packages through its freight network, where it recently imposed a second 4.9% increase in the past year.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

(END) Dow Jones Newswires

June 19, 2017 15:32 ET (19:32 GMT)

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