United Parcel Service will place its first holiday-season surcharges on U.S. packages, as the world's largest package-delivery company seeks to defray a surge in year-end costs.
A fee of 27 cents a package will be levied on deliveries by the residential ground network on certain weeks in November and December, UPS said in a statement Monday. Parcels sent to homes using next-day air will see an additional charge of 81 cents in the week ending Dec. 23, while shipments through the deferred network will incur a per-package fee of 97 cents.
The new charges are needed to help pay for additional holiday capacity in airplanes and trucks purchased at short-term premium rates, as well as to offset the cost of temporary facilities and seasonal help. UPS hired about 95,000 temporary workers during last year's holiday season.
"It's about having the customers who generate those extra costs pay for it," said Satish Jindel, founder of SJ Consulting Group in Sewickley, Pennsylvania. He said FedEx Corp. is likely to follow suit on peak-season fees.
UPS should have adopted the approach in 2014, following a disastrous 2013 holiday season in which it failed to deliver thousands of packages ahead of Christmas, Jindel said. The biggest shippers make their own contracts with Atlanta-based UPS and wouldn't necessarily pay the peak surcharge, but everyone else can get around it by avoiding the busiest period, Jindel said.
UPS shares dropped 3.5 percent this year through June 16 compared with a 9.5 percent gain for an S&P 500 index of industrial companies.
On average, UPS collected $7.97 a package shipped through its U.S. ground-delivery division last year. So the 27-cent surcharge on each item represents an increase of about 3.4 percent.
"With the new peak charge, per-package costs for many shipments will only marginally increase during this very busy time of the year," Chief Commercial Officer Alan Gershenhorn said.
The new fees will pertain to certain weeks starting on Nov. 19, with no charge for residential ground-shipped packages during the two-week period from Dec. 3 to Dec. 16. All residential packages sent by air or ground will incur a surcharge in the week ended Dec. 23. UPS also will introduce a levy on large packages and items that exceed size limits during the holiday season, the company said.
FedEx declined to comment about any actions it may take on pricing. The company reports earnings on Tuesday.