UPS and FedEx 2009 Rate Increases

UPS and FedEx 2009 Rate Increases

A little supply side economics might help.

Well, we all expected it and now it’s here. UPS and FedEx have once again raised their rates. So, in 2009, it will cost about 60 cents more to ship a package than in 2008. More or less, depending on weight, where it’s going, etc. Lots of facts. But assume $10 in shipping costs.

According to our UPS Sales Guy and our UPS drivers (we don’t use FedEx), UPS is having an awful year - drivers are having to cut back on hours, are moving from driving positions to warehouse positions and they aren’t even hiring part timers for the holiday season.

On top of this, the economy is going to slow down next year - in fact, it’s already beginning.

So on top of current slower than normal sales and future sales expected to drop, you’d expect the last thing that would happen would be higher prices for the consumer, right? Wrong.

It seems that these businesses - and this country, in fact - could use a little supply side economics.

Imagine if UPS did not raise their rates and FedEx did raise theirs for 2009. What might happen? People currently using FedEx might switch over to UPS, instead. This would cause UPS’s per package cost to go down, right? They’d have more business and more deliveries on routes that already exist.

Imagine the concept. Lower (or the same) shipping rates yielding more income and lower costs. Voodoo economics works. It’s obvious, but why don’t these heads of these giant companies get it?

FedEx, in turn, would lose business because it went to UPS. So, in 2010 FedEx would probably cut their costs (if they were smart) to stay competitive with UPS. Prices would go down for all of us consumers, allowing businesses to ship at a lower cost, which would save shoppers’ money - so they more to spend at other places. So everyone benefits.

Makes sense, doesn’t it? It seems simple and obvious to me - even our UPS sales guy agreed (though he could have been playing nice) as he seemed mystified by the price increases as well.

Another idea might have been for UPS to acknowledge the slow economy and its effects and not increase rates this year to show that they want to help businesses keep their costs low. That would have garnered a lot of good will from companies who, quite frankly, are tired of being bent over every November with a predictable and confounding rate increase.

But, alas, USPS - who isn’t raising its rates in 2009 as far as I know - will get a bigger share of the shipments. Thus, UPS will have to deal with higher per package costs to take boxes from us. Maybe they’ll learn at some point. Maybe not, but their stock price is telling us everything we need to know.


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  1. Marie on November 11th, 2008

    Has anyone heard of fixed cost???? They don’t go down regardless of supply and demand.


  2. jack in the box on November 11th, 2008

    I always said that if 42 cents is such a great deal to mail a letter then why doesn’t the government allow anyone else to do it. They are protecting the monopoly even as they forced the break up of other monopolies such as Ma Bell because of lack of competition. They forced Ma Bell to allow the use of their assets, physical lines and cables, and froze the rates for about 2 years so Ma Bell couldn’t just put them right back out of business. The only thing the U.S Post Office would have to do is give up it holiest of shrines, the mailbox.


  3. jack in the box on November 11th, 2008

    It is a known fact the US Post Office is subsidizing ALL of its other business with the delivery of literally hundreds of millions of letters within a ten mile radius for a net profit of 41.8 cents per piece of mail.


  4. lorien1973 on November 11th, 2008

    Has anyone heard of fixed cost????

    Think about this for a moment.

    It costs UPS the same to pick up 100 boxes at my door; or 400 boxes. Exactly the same cost.

    Also, it costs UPS exactly the same to deliver 1 box to my door, and 1 to the neighbor’s house. However, it costs UPS more to deliver 1 box to my house and another box to a house 2 miles away. With less deliveries by UPS because of increased rates, this is exactly what is happening.

    By dividing up the market share between UPS/FedEx/USPS - each one of their cost per box (delivered) goes up. Price competition could bring more deliveries to any one of these and thus lower the delivered cost per box.


  5. jack in the box on November 11th, 2008

    Not to mention if they come out with another Elvis stamp, they will write another million, at least, 42 cent checks or stamps that will NEVER be cashed.

    Let’s see, carry the one, yep, that’s $420,000 of instant money per million stamps never used.


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