UPS Just Raised the Stakes: Why Your Parcels May Now Cost 190% More

[00:00:00] Glenn Gooding: Now, you’re probably thinking to yourself, “My goodness! What kind of impact does that have on my business?” The answer is, it depends. Okay, if you are a shipper that ships nothing but five-pound and less parcels, right? And nothing is super long – it’s not Sage fishing rods, you’re in good shape.

[00:00:22] You’re not impacted by this, okay? If you’re a custom handbag shipper, and you ship in bulk five handbags in a carton roughly this size, what was viewed as a very attractive parcel in the carrier network is now getting punitively priced. You’re dead in the water. You’re in a lot of trouble.

[00:00:43] Welcome to Parcel Perspectives, the podcast dedicated to small parcel shippers. I’m Glenn Gooding. In each episode, we dive into insights, best practices, and strategies to help you navigate this complex and costly market.

[00:00:58] Hello, everyone. Welcome to another edition of Parcel Perspectives. I’m Glenn Gooding. You’re about to listen to a podcast that I recorded last week. I need to amend one quick date change for everyone listening.

[00:01:15] At the time of the recording, I was operating under the understanding that the rate change that I’m discussing, the Additional Handling charge – which you should listen to – was going to affect June 1st. Now, it looks as though that’s going to be implemented on August 17th, so the train’s still coming.

[00:01:34] All the information contained other than the date is accurate and I hope you find great value in it. Thank you very much. Hope you enjoy the production.

[00:01:46] Hello, everyone. Glenn Gooding with Parcel Perspectives again. I have something of a little more urgency I’d like to share with all of you today. It involves UPS additional handling update that was effective June 1st of this year. This could be one of the most impactful and in some of your cases, as you’re staring at the parcels you ship out, egregious things that have happened recently.

[00:02:16] I want to qualify this. This is not me beating up UPS. I’m merely pointing out what they’re doing in the marketplace, and I think it’s very important that you have a clear idea of what’s happening.

[00:02:27] So, I hope to make this an impactful and information-packed segment for you to have some action plans coming from.

[00:02:37] From ups.com, you can go there and find it. Here are the following changes that have been instituted, updated effective June 1st. The domestic additional handling charge or AHC will no longer be applied to domestic packages based on length and girth. More on that in a minute. I’ll give you a quick history lesson on additional handling.

[00:02:59] So, what that’s moving to is now domestic packages with a cubic size greater than 8,640 cubic inches – which sounds huge – will be subject to additional handling charges. For those of you quickly pulling out your calculator, that is five cubic feet – five cubic feet.

[00:03:19] Other current factors used to determine additional handling charges will remain unchanged and in addition, they’ve updated the different surcharge schedule based off of the qualifying factors and the zones, and there were some increases on Zone 7+ as well.

[00:03:39] Now, before I go any further, I want to make sure everybody understands what additional handling really is, why it was originally conceived, and what it’s become today. In layman’s terms, folks, additional handling was a category applied to parcels moving through a small parcel network, AKA UPS and FedEx primarily, that were deemed to be non-conveyable.

[00:04:07] There’d be a variety of factors for why they’d be non-conveyable. Some of the more obvious ones are size. If a company is shipping a seven-foot fishing rod, it’s highly unlikely that something of that length is going to be able to make turns in a conveyed environment – a 90-degree turn. It’s more than likely to get damaged or cause other damages – fairly obvious.

[00:04:31] Another one might be based off of width. The next longest width – if it exceeded a certain threshold – may not fit in some of the conveyed environments appropriately where gravity’s involved to have a package fall one way or the other. That’s another one.

[00:04:49] Not being encased in corrugated cardboard is another great one. An example would be: imagine a five-gallon bucket full of some sort of liquid. You probably wouldn’t want that moving on a conveyor belt. It could really create problems. Or how about a bare metal trailer hitch or a muffler? How about a tire? How about a rim? All great examples of parcels that might move non-conveyed.

[00:05:20] Other things might be weight-based. Do you really want a 100-pound package moving on a conveyor belt and sliding down a gravity feed slide to an employee? Probably not, and it’s probably going to leave a wake of damage on other packages as it heads down, that chute with velocity. So, that was the initial inception. And the reason for the charge, folks, is if it’s not conveyed, it has to be moved in a much less efficient manner through the traditional small parcel network.

[00:05:53] Most of these large hub parcel operations are designed to process tens of thousands of packages per hour, and you can only achieve that through moving them on conveyor belts. So, a segment of business had to be moved manually and AKA, this additional handling charge – made a lot of sense. So now, over the course of time, it’s become an opportunity for the carriers to – wait for it – make their billing methodology a little more complex and to further enhance their revenue position outside of typical GRI’s. And so, they become much more liberal in their application of what qualifies for additional handling. What was 70 pounds is now 50 pounds. What was six feet became five feet became four feet, right? A variety of things there are now; this is the next evolution of that step.

[00:06:51] What I’d like to share with you is an example, so you can see firsthand what the potential financial impact is.

In this example, I’m going to grab what looks like a pretty attractive box, a 20 x 20 x 22-inch box with a 20-pound scale weight. When you put it in that kind of perspective, you realize that’s not that big.Five cubic feet sounded huge, but 20 by 22 by 20 exceeds the five cubic foot threshold of 8800 cubic inches. 

[00:07:26] Now, there’s myriad of possibilities here on different dimensions that would qualify here, folks. I just used this as an illustrative example, so you can really understand the magnitude here, and let’s imagine you as a skilled procurer of small parcel.

[00:07:43] You’ve – proud of a custom DIM factor you have of 250, and we all know published right now is 139, so 8,800 cubic inches divided by a DIM factor of 250 would equate to 35.2, or in the small parcel world – 36 pounds billed weight. 

[00:08:05] If that were a Zone 5 parcel and you have achieved a 50% ground commercial discount, you’d be paying $19 and 69 cents in transportation fees for that parcel. That doesn’t include the impact of other accessorials and surcharges. I just want to hone in on additional handling right now. So, no fuel, no DAS, no EDAS, no “resi” surcharge, none of that stuff. 

[00:08:24] Now, taking that same parcel under this new June 1st methodology at UPS, it does cross the five cubic foot threshold. Therefore, the custom DIM factor no longer applies. It’s billed at a minimum 40 pounds, and the Additional Handling charge applies for the Zone 5 of $36. 

[00:09:08] So, what was a $19 and 69 cents package now becomes $21 and 18 cents in transportation, plus a $36 Additional Handling charge for a total of $57 and 18 cents – again, excluding other accessorials and surcharges. That in and of itself is a 190% increase. Get your head around that. 

[00:09:19] Now, you’re probably thinking to yourself, “My goodness! What kind of impact does that have on my business?” The answer is, it depends. Okay, if you are a shipper that ships nothing but five-pound and less parcels, right? And nothing is super long – you know, it’s not Sage fishing rods, you’re in good shape. You’re not impacted by this, okay? If you’re a custom handbag shipper, and you ship in bulk five handbags in a carton roughly this size, what was viewed as a very attractive parcel in the carrier network is now getting punitively priced. You’re dead in the water. You’re in a lot of trouble.

[00:10:07] Now, to add insult to injury here, this is very hard to quantify. The reason I say that, and I’m talking specifically in the UPS environment, is if you were to pull down your billing invoice detail from UPS, you would note that the vast majority of the parcels being billed do not contain package dimensions.

[00:10:30] So, if you are reliant in a post-audit environment of looking to say, “Okay, I’m going to do some math here and determine what the impact is,” you’re going to come up blank. You have to go to outside sources, which now begs to question, “Do you have dimensions for every product, every SKU that you’re shipping out? Do you understand that? Do you have that data available to proactively perform an analysis and understand this?”

[00:10:57] Most companies that I’ve worked with don’t possess that ability. That’s a challenge. It’s a swag at best. Now, if you’re collecting yourself here, I want to talk about some of the additional challenges, and I believe some of the unintended consequences this is going to present.

[00:11:19] First and foremost, I think it’s really important to understand that history has shown us when one of the two carriers – UPS or FedEx – has imposed a billing methodology change, the other has followed suit very closely. I have no reason to believe that this wouldn’t happen again. 

[00:11:40] Let’s imagine for a second that FedEx felt they could be at a competitive advantage by not doing this. They’re going to be hamstrung with the same challenges you are. They won’t have access to the dimensions of the UPS shipping history to even understand how to position their pricing as a savings compared. So, my point being is it’d be very hard for them to effectively sell against. They’re probably going to have to mirror this methodology and just aggressively discount it. That’s an option.

[00:12:13] In today’s fragmented market where it’s UPS and FedEx fighting over a shrinking market share, Amazon and other regional carriers will potentially change their billing structure to accommodate this kind of rising tide, if you will – rising waterline. So, there’s a lot of market implications that we’re going to bubble through here.

[00:12:39] Quantifying the impact is just a bugger, guys. It’s unfortunate, but you’re probably going to be in the rears looking at future invoices and seeing how much things have increased, you’re going to have to re-contemplate your subsidized shipping methodologies – ordering five handbags at a certain value may not warrant free shipping anymore.

[00:13:03] You know, what was $20 in fees is now excess of almost $60. That could kill your margin – destroy you. 

[00:13:16] The other thing that I find particularly perplexing is that this appears to me, and remember I was a guy on the other side of the table. I priced at the highest levels their punitive pricing on what I believe to be some of the most desirable packages in a carrier network. I’ll just explain for a moment.

[00:13:34] UPS and FedEx in particular have a real challenge with lightweight residential deliveries – the reason being is they have a fixed operating expense. They have to pay a driver to drive the vehicle to the residential address, select the package, walk to the doorstep, come back, and go on to the next.

[00:13:56] The revenue associated with a two-pound residential package is very low, very hard to offer an aggressive rate and cover your fixed expenses in that environment. So, UPS and FedEx have always coveted these larger packages. When I say large, I’m not talking about mega large, but 20 x 20 x 22 falls into the wheelhouse of a very coveted package.

[00:14:21] A $20 fee for a 20-pound scale weight package is very attractive. It could be three or four times what they would get in revenue for that lightweight residential package. I find it particularly perplexing to see that there’s punitive pricing now attacking those very packages, and it could lead to some really unintended consequences for UPS and for FedEx and any other carrier that chooses to pursue this methodology.

[00:14:54] It’s going to encourage smaller, lower yielding packages. So, as an operator, as a brand, you look and say, “Wow, I’m never shipping five handbags again together. Not happening. It’s going to be five individuals, or it’s going to be a two pack and a three pack. I’ve got to now re-engineer my processes to ship more smaller packages through the carrier.” And if suddenly, you’re converting them to smaller packages, your volume goes up and it may open the door for other viable carriers to come in and offer services for you.

[00:15:30] So, it’s an interesting time. It has massive financial impact to you, whether you know it or not. The takeaways here: you have to understand your shipping profile. It may be very challenging to get your hands around that in the near term. Lean into analytics, lean into data, and lean into an expert that can help you navigate these waters and figure this out.

[00:16:00] But if you or someone that ships a lot of packages that fall into the size range, brace yourself. Next week’s invoice is going to be a doozy. 

[00:16:12] This is Glenn Gooding with Parcel Perspectives, and I hope you found this valuable until our next podcast topic. I look forward to it. Take care.

[00:16:26] Thanks for listening to Parcel Perspectives hosted by me, Glenn Gooding. I’ve been in the small parcel space for 37 years, starting with a deep and broad background, working for one of the major carriers as an operator and industrial engineer, later managing pricing at the highest level for the largest, most complex shippers in the world.

[00:16:44] Since then, I’ve been a national thought leader and worked to help drive strategy for clients from Fortune 50 companies to start off eCommerce businesses, helping them more competitively align in this complex and expensive market. 

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