UPS looks to test a new pricing model in which the cost of empty space during the holidays is covered by retail partners. A sort of logistics surge pricing.
The move, part of broader negotiations with retailers over peak delivery seasons, looks to address major retailers who order capacity for forecasted shipments but then fail to meet expected volumes.
UPS and rival FedEx have both invested billions in growing the volume of their logistics networks as a means to handle the year-round surge in eCommerce orders, but especially during the holiday shopping season. For instance, the company looks to spend about $4 billion through this year to keep pace.
UPS now looks for ways to recover some of that investment.
“If there are variations to the plan, let’s see what we can do, but we should be compensated accordingly,” UPS Chief Executive David Abney was quoted as saying in an interview. “We will handle it on a customer-by-customer basis, we will look at our costs, and that’s the way we’re going to address it.”
UPS looks to place the burden of the surcharge on the top volume shippers during the holiday season, as well as on other high-volume events throughout the year — when new devices, games and books are released, or flower shipments during Mother’s Day, noted The Wall Street Journal.
Conversations between UPS and major retailers are in early stages. The company noted that it’s still working on how exactly the new pricing model will be implemented.
Earlier this year, UPS revealed that it delivered more than 712 million packages globally during the holiday shopping season, a new record and a 16 percent increase over the 2015 holiday period. For the full year, package volume rose 4.6 percent to 4.868 billion in 2016.
And as with the holiday season, UPS’ Q1 2017 costs outpaced revenue gains. The delivery company posted a 2.1 percent decline in operating profit in Q1.