Why is UPS So Expensive in 2024? (10 Reasons Shipping Costs Are Rising)
UPS’s published rate increases for 2024 are the highest in nearly a decade. This comes on the heels of 2022 hikes of 6.9% – more than double the average annual rise. For high-volume shippers, these rapidly escalating costs strain already tight budgets. For small ecommerce sellers and consumers, they threaten profitability and affordability.
Businesses and households alike feel the pinch of inflated UPS expenses. But what specific forces are driving this pricing pain point? As a logistics industry expert, I’ll analyze the 10 key reasons why UPS rates have skyrocketed – often well above competitors like USPS and FedEx.
1. Fuel Costs Are Up 40% Year-Over-Year
The average per-gallon diesel price reached an all-time high of $5.25 in mid-2022 before declining slightly. But current rates around $4.90/gallon still reflect a 40% year-over-year increase that directly impacts UPS as a transportation provider. With no sign of relief at the pumps in 2024, UPS fuel surcharges tack on steep premiums to every shipment moved by their trucks and aircraft.
Table 1: UPS Fuel Surcharge Percentages (2023)
| Average National Diesel Price | Additional Fuel Surcharge |
|---|---|
| Less than $3.25 | 0% |
| $3.26-$3.50 | 2.50% |
| $3.51-$3.75 | 5% |
| $3.76-$4.00 | 7.50% |
| $4.01- $4.25 | 10.00% |
| $4.26+ | 12.50% |
*Based on current UPS fuel surcharge table
As the above data indicates, shippers pay a double-digit percentage premium when diesel exceeds $4.25 per gallon, as it has over the past eight months straight. For high-frequency shippers, these extra costs add up quickly.
2. UPS Driver Wages Spiked Over 10%
Persistent labor shortages across transportation and logistics have forced UPS to raise driver pay substantially above pre-pandemic rates to attract and retain personnel.
In 2022, the Teamsters union negotiated an average raise of $5 per hour for UPS drivers and warehouse workers. This 10%+ salary bump gets passed on through across-the-board rate increases on the consumer end.
3. UPS Revenue Per Shipment Jumped 15%
UPS reported 15% growth in revenue per shipment in Q3 2022 – an acceleration from 11% gains the previous quarter. This shows how recent rate hikes compound on top of ongoing yearly increases.
4. Healthcare Inflation Drives Up Benefit Costs
The soaring cost of company-subsidized health insurance also cuts into UPS’s bottom line. Average family premiums increased 6% from 2021-2022, according to Kaiser data. As these fixed employment costs rise, UPS offsets them through pricing.
5. Capital Investments Weigh On Margins
UPS pours billions annually into upgraded aircraft, automated facilities, routing software and other assets to streamline infrastructure and meet demand. But these major fixed asset investments also pressure margins as depreciation expenses tick higher. By passing some capital costs to consumers via pricing, UPS maintains profit amid ballooning operating expenses.
6. Ecommerce Growth Necessitates Pricing Adjustments
The pandemic accelerated the surge in ecommerce shipments flooding delivery networks. UPS moves over 21 million parcels daily – with residential deliveries representing 80%+ of volume. All those home shipments cost significantly more in last-mile delivery expenses like fuel, wages and transit times. While growing package volume theoretically lowers unit costs through economies of scale, major infrastructure and labor constraints prevent UPS from reaping bottom-line efficiencies, hence the need for price inflation.
7. UPS Leverages Pricing Power In Oligopoly Shipping Market
How does UPS get away with such exorbitant price hikes when FedEx and USPS increases remain relatively moderate? The answer lies in industry consolidation and barriers to entry. With more than 40% market share of total shipping spend, UPS occupies an oligopoly perch alongside FedEx (~30% share). New entrants can’t realistically challenge these entrenched enterprises. So UPS can leverage unmatched scale and service breadth to implement hikes unchecked. Smaller players must follow suit to close margins and prevent customer churn.
8. Minimum Rate Box Eliminated Cheapest Ground Option
In 2022, UPS ditched its decades-old “Minimum Rate Boxes” that guaranteed the lowest Ground rates for lightweight, shoebox-sized packages. Retailers relied heavily on these for affordable next-day ground shipments under 1 lb. By eliminating this critical budget shipping option, UPS effectively raised rates on the lightest parcels.
9. New 2023 Increases Are The Highest In 10 Years
UPS typically announces rate changes 45 days before they take effect in December annually. While the carrier hasn’t yet released 2023 increases, advance notices from UPS resellers point to hikes ranging from 6.9% (for air freight) up to 11.5% for ground packages. Shippers should brace for record spikes not seen since 2013.
10. UPS Return Shipping Cost Triple Seal ‘Pink Stickers’
When customers return ecommerce orders, UPS makes shippers pay the brunt of return delivery fees rather than providing free printable return labels. Their distinctive Solid Pink Return Labels with UPS Return Service branding cost $23.25 for a 10 lb package shipped ground from California to New York. That‘s nearly triple the $8.40 ground shipping fees paid by the shipper to send the original package. These unavoidable ancillary return costs add up.
Table 2: Price Comparison of UPS, USPS and FedEx Home Delivery
To illustrate UPS‘s pricing premium, let‘s compare a 5 lb, regular box shipment sent from Los Angeles to New York by Ground or equivalent service.
| Carrier | Service | Transit Time | Price |
|---|---|---|---|
| UPS | UPS Ground | 6 days | $25 |
| USPS | Parcel Select Ground | 6 days | $8.30 |
| FedEx | FedEx Home Delivery | 7 days | $15 |
Clearly at +203% above USPS, UPS positions itself as the premium ground carrier while FedEx rates land in the middle. This holds true across regions and transit times. Savvy shippers run volume parcel comparisons to source the best carrier mix.
Key Takeaways: Why is UPS so Expensive in 2024?
- Fuel surcharges from expensive diesel tack on steep premiums
- Outsized wage increases for drivers lift operating costs
- Healthcare, equipment and infrastructure drive fixed overhead
- Hiking revenue per shipment grows margins
- UPS leverages 40% shipping marketshare to set prices
- Eliminating budget ground services raised rates for small packages
- 2023 hikes will be over 6.9% across the board
For high-volume shippers, these runaway price spikes impact stability and continuity in operations. Businesses must take concerted steps to mitigate ballooning UPS expenses through close carrier price monitoring, fuel efficient routing modes, zone skipping from regional sort facilities, discounted rate negotiation, and rebalancing shipping volume across cost leaders like USPS.
On the consumer side, rate increases hit harder, limiting ecommerce access and affordability for all but the most privileged households. Until meaningful competition emerges to undercut pricing power, shippers and consumers alike remain largely beholden to the unchecked inflationary whims of UPS leadership.
