No More "Unlimited Weight" UPS Letters - a 44% Increase in Your Shipping Costs

For years, UPS has made sure that shippers comparing their express envelope shipping with FedEx, or even premium US Postal Service offerings, know that a shipper can stuff as much paper as they would like into the UPS letter and legal-sized envelopes without any restriction on weight and still obtain the "letter" rate. In contrast, the FedEx terms place a limit on letter and legal envelopes at eight ounces and everything more than eight ounces is billed at the actual weight.

For shippers or organizations like PA & Associates, which help shippers with their spend management strategies, special consideration needed to be given when negotiating and comparing UPS envelope shipments to FedEx envelope shipments to ensure that shippers considering a move from UPS to FedEx did not realize an increase in shipping expenses in this area.

However, UPS changed this policy for 2010. As noted in the UPS Tariff/Terms And Conditions of Service for Package Shipments in the United States, UPS will now charge by scale weight (rounded up to nearest pound) for letter and legal envelopes weighing more than eight ounces (see page 23, section 35.3). Interesting to note that the Terms and Conditions document is buried four clicks into the UPS.com website.

It isn't surprising that UPS changed its policy for this segment of shipments given their intensive focus on package yield which began in 2009 (more about this fundamental, strategic change in managing profit margins which has already begun to affect end-user pricing and discounts in a future blog post). What some may find surprising is how UPS has (or has not) conveyed this change to their users.

At PA & Associates, we have been monitoring our client data for changes to UPS charges for letters. We have noted that the earliest instance of UPS changing the way they charge for letters weighing more than eight ounces was for the week ending January 23, 2010.

Yet, phone calls and e-mails to a number of UPS account executives to inquire about this issue were met with the same initial response, which went something like this, "No; UPS allows customers unlimited weight for envelope shipments". When we supplied the UPS contact with the reference to the Terms and Conditions document and section stating this change, the response was varied from the honest "I didn't know about this" to the embarrassed "I'll have to check on this and get back to you".

To date, none of our clients which we have inquired with about this change have been made aware of it by someone from UPS. For some of you more cynical users of UPS (or FedEx, for that matter), you may not find this surprising. After all, both companies have issued annual increases and raised surcharge amounts and have been less than helpful in providing the information the average shipper needs to fully understand the impact of increases to their bottom line.

What is the impact to an average UPS shipper?

For illustration purposes, let's create an average week of shipping for a user of UPS services to determine the impact to the shipper's bottom line.

On any given week, our shipper sends 100 letters (in addition to their regular UPS packages). This would not be an uncommon or high amount for someone in the financial services industry (e.g.; mortgage or title business). The shipper is well-aware of the UPS policy to allow for unlimited weight in the envelope and, frequently, sends more than eight ounces of paper per envelope. In fact, this had been a point of consideration in choosing UPS over FedEx for the type of shipping they do.

Of the 100 letters per week, let's say that 25% are contracts or checks and the remainder are loan packages or escrow closing information...stuff that would weigh anywhere between 2 and 7 pounds (we have some creative shippers that, somehow, get upwards of 12 pounds into envelope products!). For pricing purposes, let's divide the 75% of eight-ounce plus shipments evenly over 1 to 7 pounds (about 10 pieces for each weight per week). And, for ease of calculation, let's say that each of these pieces are destined for a Zone 5 recipient.

The results

Prior to the change in pricing, our hapless title shipper was spending $1,717.50 per week to send 100 letters to Zone 5 (this would just be the base rate shipping charge -- at the list rate for 2010-- not including any applicable surcharges or accessorial charges).

After the change in pricing, the same packages now cost $3,887.50; an increase of $2,160 per week or a whopping 44% increase. Over a period of 52 weeks, that's an additional $112,320 in shipping costs that our shipper probably didn't account for in their last re-work of the 2010 budget.

And the sad truth is that the average shipper who does not employ spend management strategies in this critical spend area probably has no idea that costs have gone up. Those that do monitor costs closely might see that something is out of whack, but have no idea what it is or where to find the changes.

What can you do?

The obvious (and biased) answer is that you should contact PA & Associates for assistance in managing your costs. We can assist most shippers, regardless of annual spend, with either a formal spend management project or even just free strategies if you don't qualify for one of our projects. In fact, I'll provide my number here and you can reach me directly: 866-200-SAVE (7283) x 201.

However, there are areas to consider when reviewing your agreements. If you are considering a move to FedEx and ship a critical number of envelopes in your shipping profile, make FedEx aware of this (provide relevant data with service type, weight and zonal breakdown) and request that they make a provision for you in your agreement for unlimited weight envelope shipping. A word of caution, however; the new focus by FedEx and UPS on package yield and a change in honoring discount requests is beginning to take hold in the mass market. Your chances of obtaining such a provision may be slipping away day by day.

If you are a UPS shipper, you can make a similar request of UPS. While FedEx has a formal program to bring parity in this area between their pricing and the way UPS used to honor the unlimited weight envelope, UPS does not. This makes it easier for a FedEx shipper to make such an appeal, while a UPS shipper will be reviewed on a case-by-case basis. So far, UPS has honored our requests to allow a shipper to ease into this change by offering some limited weight, limited time (or both) provisions that do not bring an abrupt change to shipping costs. Note, however, that we're experts at this.  Your results may vary.

I've yet to find any of our clients or a shipper in the general population that actually reads the Terms and Conditions when they are published every year. I once had a bout of insomnia and took a read of the T&C document; worked just as good as an Ambien!

When it comes to parcel mode optimization, AP reporter gets it "kind of" right...

When The Associated Press reporter Samantha Bomkamp released her piece As consumers slow down, FedEx and UPS adapt (AP News, September 1, 2009), she got it kind of right. After all, sending paper overnight through the guaranteed services FedEx and UPS provide might be considered a luxury for businesses that have the alternative to use USPS or the "deferred" services that FedEx and UPS provide [see inset frame below for full article].

Bomkamp's contention is that consumers and small businesses that have relied on the overnight services (FedEx Priority Overnight and UPS Next Day -- both services offer next morning delivery of documents and packages by 10:30 am) have re-evaluated their spendthrift ways of days gone by when times were good and revenues plentiful. For those that still require the enhanced offerings for delivery -- including tracking, delivery signatures and guaranteed services -- the solution has been to opt for the carriers' less-expensive modes of delivery, such as two-day and three-day delivery services. And while there is no doubt that these deferred services are priced lower than the overnight services, the knee-jerk reaction to cost-reduction misses the mark as a cost-reduction strategy for those who need overnight delivery as a competitive advantage.

A trusted connection of mine who was formerly employed by one of the top-three global commercial real estate firms forwarded me an internal e-mail communication from the company's CEO that urged all employees to cease the use of overnight delivery services in favor of the slower, less expensive carrier offerings. Think about that for a minute. These are some of the most successful and driven real estate professionals in the world being asked to relinquish a competitive advantage of timely delivery of urgent and important real estate documents (offers, contracts, plans, payments, etc.). Competitors that get offers in ahead of others stand to gain an advantage.

It would seem that a better option would be to reduce the cost of the service that is required. In the example above, our organization attempted to position our logistics spend management service offerings in front of the corporate office to do just that. Bomkamp's article below discusses a small media relations firm in VA who's CFO was trying to strike a balance between reducing headcount and reducing indirect spend. He was able to make a mode optimization, like that referenced above, which saved the organization $14,000 annually. The firm reported that they employed a staff of 13. Not a bad savings, but not the optimum approach. I would doubt that his $14,000 in savings accounted for any of the thirteen's annual salary.

That said, we have been hearing this message for the last 24 months; its reduce expenses or reduce headcount. When the full costs of hiring (and re-hiring) are evaluated, reducing headcount is a backwards approach to cost-cutting. Granted the balance sheet effects are immediate and the modeling compelling, but the approach is short-sided. Services like PA & Associates' make more sense to explore prior to the last-ditch measure of cutting headcount. Ask CFOs if they have taken cost-cutting measures during the last year and they will report they wrung the general ledger dry of all expenses. However, when we dig down into many of the indirect spend categories we find that best practice procurement, strategic sourcing and true spend management techniques have not been employed. Its a mentality of, "we flip the light switch on in the morning and turn it off at night; we're going to get an electricity bill and there's nothing you can do about it". That's just not the case.

The economic downturn has produced two sets of cost-cutters; those who have made the easy and obvious cuts to survive and those who have fully changed their mindset on what it means to run lean. Our clients comprise the latter group and have employed our methodologies as best practice spend management techniques in multiple areas of their operations for real and lasting cost reduction and continuous improvement (spend management). Many are saying that we'll never be the same when things completely recover. I differ with them in that human nature is to resist change and opt for the path of least resistance. We will see some that will make lasting change and it will become their new culture. We will, however, see a large number of those that will go back to their old, wasteful ways when revenues return. How easily we forget.