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UPS announces rate hikes
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December 29, 1999: 5:08 p.m. ET
Increases for 2000 range from 2.6 to 3.9 percent, as UPS targets LTL truckers
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NEW YORK (CNNfn) - United Parcel Service announced rate increases Wednesday of between 2.6 to 3.9 percent for next year.
The Atlanta parcel delivery giant, which was picked as "company of the year" in the current issue of Forbes magazine, said the new rates will take effect Feb. 7. The rate increases are larger than the 2.5 percent increase announced a year ago, but in line with expectations of analysts.
UPS is seeking rate increases of between 2.6 and 3.9 percent on shipments starting Feb. 1, in line with analysts' expectations.
It announced its greatest percentage increase in the business-to-business shipments of multiple packages, a product it refers to as "hundredweight."
Those shipments, which compete with traditional trucking companies that consolidate pallets of freight, will see a 3.9 percent increase. But the competing trucking companies, known as less-than-truckload carriers, generally announced increases in the range of 4.9 to 5.8 percent earlier this fall.
"We do want to send a signal about being very aggressive in the LTL sector," said Susan Rosenberg, a UPS spokeswoman.
UPS (UPS) said air shipments will increase 3.5 percent, while commercial ground shipments will increase 3.1 percent. Most residential ground shipments will increase 2.6 percent, although a $1 surcharge for shipments to some rural zip codes will be increased to $1.50.
No fuel surcharge
The company did not announce any fuel surcharge of the kind that many other freight carriers are considering or announcing. UPS' primary competitor, Federal Express Corp., said it is considering a fuel surcharge and will reveal its plans early next month. FedEx, the prime unit of FDX Corp. (FDX), has yet to announce its base rates for 2000, and is likely to do so early next year.
Rosenberg said that UPS does not have plans for any kind of surcharge and is well hedged on fuel costs going into next year, although she could not give details.
Analysts were expecting this level of rate increase at UPS, and do not think the announcement will affect the company's stock significantly.
"I would have been disappointed if they had not raised rates by about 3 percent," said Doug Rockel, analyst with ING Barings. "This is what we all modeled for."
Rockel and many other analysts have a "hold" recommendation on the stock because of its lofty valuation, about 30 times earnings.
"It's pricier than anything in the transportation industry," Rockel said. "But they're an awesome company and they deserve the Forbes designation. They're going to end the year with some of the best margins and strongest growth they've ever experienced."
Forbes' article in the Jan. 10 edition highlights the company's efforts to bounce back from a two-week strike in August 1997, and its technology platform that has allowed it to be the leading player in delivery of e-commerce goods.
"UPS used to be a trucking company with technology. Now it's a technology company with trucks," the article said.
The company, which on Nov. 10 had the largest initial public offering in U.S. history, has made an $11 billion investment in technology in the last decade.
"Not only does that investment make possible the immediate knowledge of every movement of goods, but it is also the glue of trust for a new wave of worldwide commerce," the Forbes piece said.
UPS has seen more competition for home delivery of e-commerce purchases in the last year from Airborne Express, a division Airborne Freight Corp. (ABF); RPS, the ground parcel unit of FDX; and some other start-ups going after that business for the first time. But Rockel doesn't believe any of them are having an impact on UPS' market share or rates as of yet, and he thinks UPS is making more gains in FedEx's core overnight package business.
"I think that all these other forms of competition are still miniscule, barely on the radar screen compared to UPS," he said.
UPS' stock climbed 3/8 to 69-3/8, in trading Wednesday. 
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United Parcel Service
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