On Friday, November 20th UPS issued its 2010 Rate Change. Highlights of the changes, with an effective date of January 4, 2010, included:
• Ground service will increase 4.9%
• UPS Air and International Services will increase a net 4.9% through a combination of a 6.9% increase in the base rate and a 2% reduction in the Air and International Services fuel surcharge
• More flexible pickup options
• Changes to both the Air & International and the Ground fuel surcharge indexes
• Adjustments to many accessorial charges

Package Rates

An assessment of Ground rates begins with the zone 2, 1 lb. rate that is used to set the absolute minimum charge (AMC.) This rate increases from $4.57 to $4.84, up 5.9%. The chart illustrates how the AMC has increased in recent years compared to the announced average Ground increase.

Absolute Minimum Charge         2007                 2008                 2009            2010
Zone 2, 1 lb. charge                         $4.00                $4.20                 $4.57          $4.84
Zone2, 1 lb. increase ($)                  $0.20                $0.20                $0.37           $0.27
Zone2, 1 lb. increase (%)                 5.0%                 5.0%                 8.8%            5.9%
Announced Ground increase           4.9%                 4.9%                  5.9%            4.9%
The percentage increase in this specific charge is less then last year's 8.8% but still outpaces the overall announced Ground increase. Shippers of light weight, short zone shipments need to take these chances into consideration when developing their parcel shipping budgets for next year.

Continued appraisal of the Ground rates reveals the percentage increases in 2010 are not as high as the increases taken in 2009. However, the trend toward higher increases in the lighter weight breaks continues. Linking on the 2010 vs. 2009 Ground PDF file below you will see a 6.4% average increase for the 1-5 lb weight segment, 6.0% average for 6-11 lb, and 4.9% average in the 11-25 lb range. As you move into the heavier weight categories the percentage increases shrink.

Moving from Ground to Air, for those of you who have been taking advantage of the no weight limit Express Envelope for Next-Day products you will be impacted by the change that (letter) shipments more than 8 oz. will be billed by weight. This is in line with standard practice at FedEx.

The increases by specific service level differ from the 6.9% announced rate increase. A comprehensive review of all domestic zones, letter through 150 lb shows an average increase by service as follows:
Service Level                Average Increase (%)
Next Day Air Early AM            6.64%
Next Day Air                           7.90%
Next Day Air Saver                  8.24%
2nd Day Air AM                       7.58%
2nd Day Air                             7.90%
3 Day Select                           6.90%

As with Ground, the actual increases by weight and zone vary. Click on the 2010 vs. 2009 Air PDF file below for a summary of these changes by service level.

New Flexible Pickup Options

UPS has made changes to their Weekly Service Charge format. The charge which had been set at three different weekly spend tier levels ( $0 to $14.99, $15.00 to $59.99, and $60.00 or more) will now be based on two tiers (less than $75.00 or more than $75.00.) The new cost will be $20.00 if weekly billing total is under $75.00 or $10.00 if greater than $75.00.

In addition, UPS will be offering an expanded menu of flexible pickup options that support their initiatives to reduce carbon emissions. The infrequent shipper should benefit most and are encouraged to take a look at the new options which include:

• UPS Smart Pickup — technology automatically arranges a pickup only when you have packages to ship - $10.00 flat weekly charge regardless of weekly billing.

• Day-Specific Pickup — pre-select the number of business days from 1 up to 4 for a UPS driver to pickup — the cost ranges from $10.00 up to $20.00 per week depending on the number of days and weekly billing amount.

• Daily On-Route Pickup — a UPS driver makes a pickup at your location every business day while making deliveries in your area, even if there are no packages being delivered to your location — this charge is $20.00 if weekly billing total is less than $75.00 or $10.00 if weekly billing is greater than $75.00.

Fuel Surcharge Changes

There is some restructuring with the Fuel Surcharge (FSC) calculations for both Ground and Air. The changes are illustrated in the Fuel Surcharge Summary PDF link below. First, the fuel price at which the FSC is triggered has been increased for Ground, from $1.50 up to $1.75 and for Air, from $1.30 up to $1.46. The last time the On Highway Diesel Index was below $1.50 was December 2003 at 148.98 while the Gulf Coast Jet Fuel monthly index was below $1.46 in April of this year when it registered 136.93. Expect to see FSC continuing to have a meaningful impact on your total transportation cost in 2010.
Second, in an effort to reduce the volatility of fuel surcharges, UPS has increased the interval levels between FSC rate changes. In 2009 the interval for Ground is $0.08; in 2010 it will increase to 0.12. For Air the interval has been $0.04. In 2010 there are two trigger rate levels that will increase the interval to $0.06 and then $0.08. The wider interval spreads are designed to temper fluctuations in fuel costs.

However, there is one more change pertaining to the Ground FSC Index. In the link you will see that in 2009 the surcharge increases at a rate of 0.25% in but will rise at a rate of 0.50% in 2010.

What does this all mean?

Although there is no way to predict with certainty what will happen with fuel costs next year, we can look into the current forecast from the Energy Information Administration for guidance. Using their current Short-term Outlook for Diesel and Jet Fuel costs we have calculated the differences between what the FSC would be using the 2009 numbers versus the new 2010 changes.
Estimated Fuel Surcharge Level   2010 Q1        2010 Q2      2010 Q3   2010 Q4
Projected On Highway Diesel Cost        $2.84               $2.91            $2.97       $3.05
FSC using 2009 Index                            4.50%              4.75%          5.00%     6.00%
FSC using 2010 Index                            5.50%             5.50%            6.00%    5.25%

Projected Jet Fuel Cost                           $2.09                $2.14            $2.19    $2.26
FSC using 2009 Index                          10.00%             11.00%         11.50%  12.50%
FSC using 2010 Index                            8.00%               9.00%          9.50%   10.50%
It appears that we could be in for higher Ground FSC and lower Air FSC in 2010.

Accessorial Charges

Notable changes in accessorials include the following:

C.O.D. Tags & Electronic Processing increasing from $9.00 to $10.00.

Declared Value charges increase from $0.65 up to $0.70 per $100 value, minimum charge changes from $1.95 up to $2.10.

Delivery Intercept moves from $10.00 to $11.00.

UPS Delivery Confirmation, Signature Required and Adult Signature Required all increase $0.25.

Proof of Delivery does not change, remaining at $3.00

Saturday Delivery and Pickup are unchanged at $15.00. UPS also states that Return Services are now available for Saturday.

UPS Returns Services of Print Return Label $0.50, Electronic Return Label $1.00, and Print & Mail Return Label $2.25 are not changing. UPS Returns Plus 1 Pickup Attempt increase from $4.00 to $5.00 while 3 Pickup Attempts increase from $6.00 to $7.00.

Additional Handling raises $0.50 to $8.00.

Address Correction Air goes from $10.00 to $11.00, Ground increases from $8.00 to $10.00.

Delivery Area Surcharges:
• Commercial $1.60 will now be $1.70
• Residential $2.40 will now be $2.50
• Extended Commercial $1.60 will now be $1.70
• Extended Residential $2.65 will now be $2.75
• Extended Area Surcharge Export & Import increases $2.00 to $24.00, or $0.24 per pound whichever is greater

Hazardous Materials increase $2.25 for both Air to $25.00 and Ground to $25.00.

Large Package Surcharge is up $5.00 to $50.00.

Remote Area Surcharges to Alaska $15.00 and Hawaii $6.00 are unchanged.

Residential Surcharges increase $0.10 for Air to $2.50 and $0.15 for Ground to $2.20.

You'll need clear visibility into your package distribution pattern in order to determine the impact of this year's rate change. Rates themselves are only one piece of an increasingly complex puzzle you must solve in order to properly identify your total cost of parcel transportation.

View 2010 vs 2009 air.pdf
View 2010 vs 2009 Ground.pdf
View Fuel Surcharge Summary PDF.pdf