Consultant Insight: UPS increases international peak surcharges for second time in 2021

UPS will raise peak surcharges on international shipments originating in China and Hong Kong SAR for the second time this year, just two months after its previous increase. The impact will be felt the most by shippers relying on UPS for speedy international deliveries, such as for e-commerce goods. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] UPS Worldwide Express Plus, Express and Saver services will see a 10.6% increase from the Feb. 28 peak surcharges. Worldwide Expedited services will increase 10.1%, and Worldwide Express Freight and Worldwide Freight Midday will see a 5.7% increase from the Feb. 28 peak surcharge. The UPS increase in its peak surcharges comes as the trans-Pacific lane is burdened with high ocean freight demand due to U.S. shippers’ need for inventory replenishment and the general rise in cross-border e-commerce. At the same time, ocean freight is facing difficulties as a mode, as the shortage in ocean freight containers combined with the high demand for ocean freight services has resulted in a tight capacity situation and higher Twenty-foot Equivalent Unit (TEU) rates. The Port of Los Angeles, for example, reported that year to date through March, overall cargo volumes increased 44% compared to 2020. Meanwhile, the Port of Long Beach saw its busiest month in March and its second-best quarter on record. The port reported a 62.3% jump in TEUs from March 2020. The ports of Los Angeles and Long Beach account for half of all U.S. imports from Asia. According to a recent note from ocean freight consulting firm Drewry, ocean freight carriers are set up nicely for at least another two very profitable years [2021 and 2022].” This will likely result in modal shifts. The year has already been marked by some shifts from ocean freight to airfreight as shippers scramble to ensure they receive their cargo promptly. This shift is also prompting air carriers such as UPS to increase their peak surcharges. According to UPS’ earnings call on Feb. 3 for the quarter ending Dec. 31, there were 365 additional flights added to support market demand for export services. Total exports increased almost 28%, led by Asian exports, which were up 45%. While FedEx has yet to respond to UPS’ latest increase in peak surcharge with its own increase, Rajesh Subramaniam, FedEx president and chief operating officer, noted on the company’s March 18 earnings call, for the quarter ending Feb. 28, “At FedEx Express, we expect elevated pricing for at least the next 12 months. We know, however, that these prices are not sustainable in the longer term, and we will flex our networks appropriately as commercial capacity returns into the market.” Brie Carere, FedEx executive vice president, chief marketing and communications officer, further noted, “We expect passenger capacity to recover between 55% and 75% of its pre-COVID level by the end of the calendar year 2021 with a full recovery not anticipated until 2023 or 2024.” She added, “From a demand perspective, [Asia Pacific] outbound has recovered to pre-COVID, while Europe outbound is expecting a partial recovery by the end of 2021 and a full recovery sometime in 2023.” Higher international shipping costs will continue for shippers for at least this year and perhaps into next year, if industry analysts are correct in their forecasts. This could lead shippers to rethink their sourcing locations to lower their costs, which would result in higher prices for end users. This week, the U.S. Bureau of Labor Statistics reported that the March Consumer Price Index (CPI) increased 0.6% after rising 0.4% in February. The March one-month increase was the largest rise since a 0.6% increase in August 2012. During the last 12 months, the CPI index increased 2.6%, unadjusted. As high demand for Asian goods continues, U.S. shippers may need to adjust their supply chains to ensure international and domestic capacity — and to manage costs.

Consultant Insight: UPS increases international peak surcharges for second time in 2021

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