DALLAS – UPS says it will consider box size when setting prices for ground shipment of parcels within the U.S. and Canada.
The move announced Tuesday follows a similar change by rival FedEx, and it could lead to price increases for shippers, analysts say.
United Parcel Service Inc. believes that the change will push customers to put lightweight items in smaller boxes that take up less space on its familiar brown trucks, reducing the company’s costs.
The change takes effect Dec. 29, after the big holiday-season shipping period. Atlanta-based UPS already factors box size in rates for air shipments.
Packages have become lighter in relation to size over the past few years, which UPS says leads to higher costs and less efficient use of cargo space.
“UPS has been researching the potential expansion of dimensional-weight pricing for a number of years because it enables us to more appropriately align rates with costs, which are influenced by both the size and weight of packages,” the company’s chief commercial officer, Alan Gershenhorn, said in a statement.
Last month, FedEx Corp. announced that it would consider size and not just weight when pricing ground shipment of packages. Like UPS, FedEx was already considering size in rates for priority shipments.
Logan Purk, an analyst for Edward Jones, said shippers will pack books and DVDs more tightly but won’t scrunch fragile items or women’s shoes.
“Amazon can keep shipping the way they do now and maybe that cost gets passed on to consumers,” Purk said in an interview. He said that UPS and FedEx could see a dip in volume due to better packing, but that will be offset by slightly higher prices. Both the delivery companies and shippers will benefit from more efficiency, he said.
The new pricing approach for ground shipments indicates that FedEx and UPS are gaining leverage to boost prices because of rapid growth in online buying, according to Citi analyst Christian Wetherbee. He said in a note to clients that UPS’ move could embolden FedEx to keep leading on price increases, “which could include a peak-season surcharge later this year.”
Wetherbee predicted that the new pricing structure could boost UPS’ earnings per share in 2015 by between 2 per cent and 3 per cent.
Shares of UPS rose 42 cents to $101.60 in afternoon trading. They began the day down 4 per cent in 2014.