Parcel - February 2008 - (Page 19) Codes! That means that you are a rare shipper, indeed, if none of your packages are destined to the aforementioned ZIP Codes. >> Shipper Alert: Remember, there is no longer a separate Ground residential rate table, and incentives no longer apply to the residential surcharge. The Residential Differential has been increased from $1.85 to $1.95. That’s a 5.4% increase! The following example illustrates the “real” impact of incentives no longer applicable to the residential surcharge. Let’s assume a company ships 15pound packages to zone 5 with a 25% discount. Since December 2006, the base rate increased 10.8%, but the “real” increase is a staggering 17.0%. 2008 2007 2006 % Increase I’ll state the obvious by writing that Delivery Area Surcharge and Residential Differential are tremendous money makers for UPS. Obviously, any shipper with a high percentage of residential customers is really feeling the brunt of these charges. Ground Commercial Hundredweight rates increased 5.2% for 200 – 499.9 pounds and 5.3% for 500 pounds or more. Tier 7 has the smallest increase (4.2%) of all Tiers. There was a fairly even increase among all zones within each Tier. Time Definite / Express Services Base Rate $7.79 Discount -$1.95 Net $5.84 Res. Diff. $1.95 Charge $7.79 $7.42 -$1.86 $5.56 $1.85 $7.41 Base Rate Res. Diff. Gross Discount Charge $7.03 $1.85 $8.88 -$2.22 $6.66 10.8% Time Definite/Express Service rates increased significantly this year. Also, they are subject to all surcharges and differentials. UPS has many service options to address your time definite service requirements. In the process of doing so, it has become somewhat confusing to select the appropriate offering as it relates to cost versus service tradeoffs. Here is a summary of the service offerings and the respective rate increases: Next Day Air: 10:30 a.m., noon or end of day delivery of letters, documents and packages. Delivery time is determined by the destination. Letters increased in all zones from $0.30 - $1.40 (2.2 – 6.9%). Rates increased a whopping 8.1% for 1 – 70 pound packages, with smaller increases in the shorter, less used, zones. To demonstrate the variability of increases, a five-pound package shipped to zone 102 increased 3.4%, while the same package shipped to zone 5 went up 8.9%. (SmartTran’s analysis shows that you can expect an 8.5 – 9.0% increase in Next Day Air charges.) By going with smaller increases in short zones, UPS continues its efforts to decrease the number of low zone Next Day Air packages being shifted to the less profitable Ground service. The prudent shipping manager recognizes that zone 2 Ground packages are delivered next day with a guarantee and that the majority of UPS’ deliveries occur before noon. So there is no reason to spend the extra money on Next Day Air service. Table 2 summarizes the impact of the increase. Next Day Air Hundredweight rates increased in all Tiers from 5.5 – 7.2%. There is a significant difference in the percentage increase among zones within each Tier. For example, in Tier 1, zone 2 increased 5.2% while zone 3 rose a staggering 9.4%. Next Day Early A.M.: 8:00 a.m. delivery of US domestic letters, documents and packages from most metropolitan areas. In addition, 8:30 a.m. delivery is available from virtually all overnight shipping locations coast to coast. Add $28.50 to the appropriate Next Day Air rate. This is the same amount as last year. Next Day Air Saver: 3 p.m. or 4:30 p.m. delivery to commercial destinations where UPS Next Day Air is committed by 10:30 a.m. or noon, respectively. Residential deliveries to UPS Next Day Air Saver destinations receive delivery by end of day. Letters increased between $0.50 - $1.40 (3.6 – 7.5%). Package rates increased an average of 7.2% for 1 – 70 pound packages. The rates for this service average a mere 7.3% off of the Next Day Air rate. Have you noticed that the price difference between Next Day Air and Next Day Air Saver has tightened over the years? It’s true! Last year, they were 8.6% off of the February 2008 19 17.0% Exhibit 1 shows the “real” impact of no longer applying a discount to the residential differential. The graph shows the net rate increase from December 2006 to 2008 for various package weights (5 – 30 pounds) along with numerous discount rates (0 – 40%). The results are astounding. For example, if you have a 30% discount and ship 20-pound packages, the “real” increase is 22%. Bottom line: if you ship Ground residential packages, you need to understand this enormous impact on your shipping costs. >> Shipper Alert: Residential shippers are seeing an un- precedented increase in shipping cost since the elimination of discounts on the Residential Differential, and there is no let-up in sight. The Residential Delivery Area Surcharge has been increased from $2.20 to $2.30. That’s a 4.6% increase! Do you realize it has increased 100% over the past five years ($1.15 to $2.30)? Exhibit 1 Ground Residential Analysis Percent Residential Analysis Ground Rate Increase Two Year Percent Increase No Residential Differential Discount No Residential Differential Discount (Assume no minimum charge) (Assumes no minimum charge) 35.0% Percent Rate Increase 30.0% 25.0% 20.0% 15.0% % Rate Increase 10.0% No Discount 10% Discount 20% Discount 30% Discount 40% Discount 5.0% 0.0% 5 Package Weight (Pounds) Package Weight (Pounds) 10 15 20 25 30 www.PARCELindustry.com http://www.PARCELindustry.com
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