Mailers Mull New UPS Surcharges, Delivery

Mailers that rely on United Parcel Service, Atlanta, to deliver packages to what it calls “less-accessible” ZIP codes are concerned about a $1 surcharge quietly announced late last month. However, a new plan allowing UPS to deliver to these areas faster has mailers excited.

Besides an average 2.5 percent rate increase, UPS said a $1 surcharge will be tacked onto residential ground delivery rates in 22,314 rural 5-digit ZIP codes. In addition, residential deliveries still will be $1 more than commercial ground rates, so there will be a $2 increase for parcels delivered to these areas. All rate increases will be effective Feb. 8. Even though the U.S. Postal Service said there are only 45,000 5-digit ZIP codes, UPS said the less-accessible ZIP codes account for only 2.5 percent of its volume.

As of Feb. 8, UPS won't defer deliveries in these areas. Over the past three years, the shipper held packages — usually a day — until it accumulated enough parcels to cost-effectively deliver them to a rural area. It now will distribute those packages immediately.

“We go through a constant dialogue with our customers about whether or not they want us to defer delivery for a day or two versus paying an extra price to help us cover our costs,” said UPS spokesman Norman Black. “This past fall, our customers have changed their mind and are saying they want packages to go through as soon as possible and they will pay for that.”

Black said e-commerce may be partly responsible. Many companies are concerned about not having fast delivery service to match people ordering products on the Internet.

To many mailers, the news is bittersweet.

“The ramifications of [the surcharge] are significant enough to look elsewhere,” said Kurt Kravchuk, corporate logistics manager at Cabela's Inc., which also uses the U.S. Postal Service's Priority Mail service and Federal Express to deliver hunting, fishing and outdoor gear to customers in both urban and remote areas. “But we will continue to use UPS for our rural deliveries in light of the fact that they are offering expedited delivery.”

Meanwhile, the postal service is gearing up for a dramatic increase in parcel volume this year because of its worksharing discounts. “We're discovering a high level of enthusiasm in making full use of these rates,” said Larry Wood, manager of operations and planning for the expedited/package services division.

The USPS is adapting its rate schedule to a system known as zone-skipping, in which price reductions are provided to those shippers who deliver their parcels to the postal facility closest to the destination ZIP code. Because distance and transportation costs are major factors in postage rates, these new discounts “allow the shipper to play to our strengths,” Wood said.

The new rate schedule allows worksharing discounts of up to 50 percent for high volume shippers. The highest increases go to shippers who deliver their parcels to any of the 40 Sectional Center Facilities or 32,000 Destination Delivery Units. To get these discounts, many companies must turn to a consolidator, which usually has the trucking capacity, sorting resources and volume to ship these packages. These consolidators can sort one customer's parcels with others' and drop them at one postal destination, instead of having a single company deliver shipments all over the country. The consolidators add a service charge to their customers' postage rates, but the costs are usually considerably lower than not using the USPS' worksharing discounts.

As a result, consolidators — such as CTC Distribution Direct, St. Paul, MN, Parcel/Direct, New Berlin, WI, GATX Logistics, Jacksonville, FL, who are working with the USPS to offer these discounts — expect to see their businesses grow.

“Everybody sees that [this] is happening, and as a result, we have seen a great influx of prospects,” said Greg Jacobs, marketing director at CTC. “People are turning to us and trying to get in and we are trying to address them as fast as we can. We are building a whole new network system [to handle the influx] and taking them in as we deem appropriate.”

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