UPS Plans to Do Away with Big Discounts for Some Retailers
According to a recent article at the Wall Street Journal, UPS has been involved in talks with dozens of retailers regarding shipping discounts on bigger packages. It seems the parcel shipping giant desires to change the terms of contracts with some retailers, particularly over the upcoming Christmas holiday season.
UPS is approaching retailers who sell bulky/heavy items that are shipped to consumers including mattresses, patio furniture, grills, and other big packages in an effort to either eliminate these deliveries, or secure more compensation. This move may be due to the fact that UPS experienced unexpected issues over the holiday season the last two years. In 2013, last-minute changes to order and weather condition resulted in missed deliveries; in 2014, over-preparation for the Christmas holiday season negatively impacted productivity.
According to UPS CEO David Abney, "Though customers enjoyed high quality service, it came at a cost to UPS." Abney went on to say that UPS would begin implementing new pricing strategies during peak season, and reduce operating costs. During a conference call regarding the fourth quarter of 2015, Abney stressed that customers would be charged more in order to compensate for the extra costs UPS has during peak season.
What is the problem with shipping bigger packages? UPS says big items take up substantial space in delivery trucks, clog up conveyor belts at sorting centers, and create more work as larger packages require extra handling by both sorters and drivers. In years past, the costs associated with the shipment of bigger packages were discounted or waived in contract negotiations with retailers who promised heavy volume. As the growth in e-commerce business continues to surge, shipping costs have become more of an issue. Many online retailers also offer free shipping on large or bulky products, which may result in retailers absorbing the additional shipping costs or passing them on to the consumer.
UPS officials said in the company's first-quarter conference call that some contract renewals yielding lower profits would not be pursued. Abney said on the call that the company attempts to demonstrate the value of its services and provide options, but some cases are not pursued.
In January, UPS and FedEx began shifting away from pricing based on weight, and toward dimensional weight pricing. Because of this, retailers have already begun to feel the impact of higher shipping fees. Many believe the shift over to dimensional weight pricing by the parcel shipping companies is to encourage retailers to reduce packaging, as many small products are shipped in oversize boxes filled with foam peanuts, plastic, and other materials to take up the empty space and protect the product.
Time will tell how UPS shipping costs impact retailers and consumers this holiday season.
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