In a move that caught virtually no one by surprise, UPS Inc. said late Friday that it would raise its 2023 published or tariff rates by 6.9%, matching the increase announced last month by rival FedEx Corp.
UPS’ (NYSE: UPS) increase takes effect Dec. 27, a week before the FedEx (NYSE: FDX) increase. The UPS increase applies to its U.S. air and ground delivery services, as well as its international services.
UPS also announced a 6.2% increase on heavier weighted air shipments moving within the U.S. and between the U.S., Canada and Puerto Rico.
The general rate increases (GRI) are unprecedented in the long histories of both companies. Typically, FedEx and UPS raise their annual tariff rates between 4.9% and 5.9%.
Analysts were expecting 2023 GRI increases of at least 6% from both carriers to offset the impact of elevated cost inflation.
There was speculation that UPS might underprice FedEx on the GRI increase in an effort to take market share. In the end, UPS chose to match its archrival.
GRIs, which apply to noncontract shipments, are somewhat symbolic because virtually all parcel deliveries move under contract. However, the level of contract rate increases, and the discounts negotiated off of those increases, are generally pegged to actions that parcel carriers take with their GRIs.
As a result, GRIs are a key barometer of the rates and discounts that shippers can expect to receive in their contracts.
As part of the 2023 changes, UPS will raise its late payment fee to 8% from 6%. It will also drop the word “peak” from its reference to delivery surcharges. Effective Dec. 27, the levies will be referred to just as “demand surcharges,” UPS said.
For much of the past two years, UPS, like other parcel delivery carriers, has handled volumes that, prior to the pandemic, would have been reserved for the peak holiday shipping season. UPS didn’t elaborate on the change in its Friday announcement. However, it’s a safe bet that, with year-round volumes approaching what was historically earmarked for peak season, UPS wanted to dispense with any association to seasonality.
FedEx disclosed its 2023 GRI increase at the time it issued a stunning preannouncement that its fiscal 2023 first-quarter results would be much worse than expected due largely to a massive operating income shortfall at its FedEx Express air and international unit.
UPS publishes its third-quarter results Tuesday morning. At that time, analysts and investors will get a clearer read on whether weakening macro conditions, which FedEx blamed for its poor results, will also be felt by UPS.
UPS Truck pic by Mike Mozart AKA MiMo on Instagram instagram.com/MikeMozart