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A Boeing-747 is unloaded by ground crews during United Parcel Service Inc. (UPS) Worldport overnight shipping operations at Louisville International Airport in Louisville, Kentucky. Photograph by Luke Sharrett — Bloomberg via Getty Images

UPS rates will change for the holidays—but not to Uber-like ‘surge’ pricing

Sep 18, 2015

Last January, following two years of struggling with booming holiday ecommerce, express shipper UPS announced that it would implement surge pricing during the holiday season. Analysts and press speculated this could mean something Uber-like, with shipping prices changing day to day or even hour to hour. In mid-August, the UPS rate guide confirmed that “holiday season changes” would impact pricing for many of its services.

But despite early speculation, those changes are unlikely to mimic Uber’s transparent and dynamic pricing. Instead, a UPS spokesperson said changes will be centered on deals with larger customers, who will “establish forecasts, promotions, and thresholds” in cooperation with UPS (ups). Individuals doing their online holiday shopping are unlikely to notice price swings.

It’s unclear whether UPS itself originally floated the idea of Uber-like pricing for shipping, or if commentators (such as Bloomberg's impassioned Matt Miller) just got carried away. Surge pricing for holiday shipping does make a lot of sense — ecommerce now creates huge shipping spikes on days like “Cyber Monday” (which this year falls on November 30th) and immediately before Christmas. Expanding to deal with those spikes in 2014 made a big dent in UPS’s profits, and surge pricing could motivate retailers and shoppers to spread the load out, making staffing simpler.

But technological and competitive hurdles mean that true surge pricing for shipping could be a long way off.

Case in point — in an earnings call Wednesday morning, UPS rival FedEx (fdx) definitively signaled that it will not implement new pricing structures for the upcoming holiday season, despite speculation early this year that competitors would follow any move by UPS.

“I’m proud to report that we are not slowing or adjusting our service commitments heading into peak,” said CEO Mike Glenn. “We have been closely collaborating with our customers all year to understand their peak shipping needs, and we stand ready to deliver.”

If competing carriers don’t implement price changes in unison, consumers and many online retailers can easily dodge any surge — thanks, ironically, to technology. The ecommerce servicer Brandshop, like many midsized shippers, can instantly and automatically comparison shop:

“A box is placed on a scale, and the scale registers the weight into our software program,” says COO Aaron Turner, describing Brandshop’s back-end process. “Then we send that behind the scenes to an API call to our technology stack. We’ll go and filter all the options we have . . . and it’ll return back the cheapest. And that’s what [shipping] label prints out.”

That’s a radically different scenario from Uber’s, which involves limited competition, and whose customers are somewhat locked into a closed app environment.

MORE: Uber CEO has no plans to kill off FedEx and UPS

Even if FedEx and UPS did adopt a surge model together, they’d still likely be undercut by the U.S. Postal Service, whose rates are set through the Postal Regulatory Commission, and mostly limited to inflation adjustment (in fact, the PRC recently ruled that USPS will have to roll back a temporary price increase). USPS has considerable capacity to catch competitive overflow.

There are also major technological hurdles to a surge shipping system that could communicate changing shipping prices to retailers and consumers. Jarrett Streebin, CEO of shipping technology firm EasyPost, says that the APIs most carriers use to interface with online retailers’ checkout systems are still primitive, and inadequate for even semi-dynamic pricing.

“I can’t even imagine them implementing it,” says Streebin, “Given what I know about their technology.”

Uber itself has debuted meal delivery and courier services in some major markets, but recently said it has no plans to compete in larger-scale logistics. The same capital intensity and big contracts that make dynamic pricing less practical for UPS and FedEx probably played into Uber's conclusion that long-distance shipping isn't a fit for them.

UPS does say it will ding its largest customers if they exceed negotiated volume limits, which could have been what they meant by “surge pricing” all along. But that has little in common with Uber, and isn’t a change over previous policies. Affected online retailers could choose to communicate those surcharges to consumers somehow, but they’ll have to decide soon — most ecommerce sites lock their code in October, to eliminate the possibility of holiday technical foulups.

Most likely, then, shoppers won’t see shipping costs directly enough to impact their buying behavior — we’ll all still be scrambling on December 22nd to order that pair of socks for our second cousins, and carriers will still have to deal with the same crush.

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