UPS plans to raise shipping rates for U.S. ground and air shipping services by an average 4.9% starting Dec. 26. International shipping rates also will increase by 4.9%.
The shipper's UPS Freight division announced an average net 4.9% general rate increase effective Sept. 19.
Later this month, rival FedEx is also expected to announce its own shipping price increase of around 5%, according to a note from Oppenheimer analyst Scott Schneeberger cited by Fortune.
Despite the specter of increasing competition in shipping and package delivery, this rate hike should not come as much of a surprise, considering that UPS has raised rates an average of 3% to 5% annually in recent years. This increase looks to be at the high end of that range, but still in line with recent trends.
In most industries where new players are rising to challenge the incumbents, prices to end users usually come down. However, there is a fairly complex array of market factors at work in the shipping sector: In addition to the new competition, market demand has inspired a range of new flexible shipping options, including more express options, all of which are likely to add costs to a shipper's bottom line.
In addition, the new competitors (including more free shipping offerings) have had the effect of leaving average revenue per package delivered relatively flat in recent years. At the same time, shippers are pressured to invest in more warehouse space and new warehouse and distribution center innovations that could bring down their costs and improve efficiency in the long run, but right now are nothing more than new expenses.
It all adds up to shippers managing pretty positive quarter-to-quarter earnings performances, largely because they continue to raise their rates.
What's additionally interesting about these price elevations is that they don't have much effect on some of the largest retailers and e-commerce companies, who often can negotiate their way around these hikes. Smaller businesses, however, may have little choice but to accept the price increases and, in many cases, pass them along to their own customers.