Recession? UPS Laughs at Your Recession

Rich Smith, The Motley Fool
Updated

Editor's note: A previous version of this article incorrectly stated that FedEx had yet to announce a rate increase. The Fool regrets the error.

If you've got to be in business, running a monopoly is a nice business to be in -- but a duopoly can be pretty sweet, too.

For all the talk that the U.S. is in a recession, or even just a slow growth recovery, there's at least one segment of the business world that seems totally unfazed, and happy to raise its prices year-in and year-out: the shipping business. In demonstration of the sector's indefatigable ability to charge consumers ... well, pretty much anything it wants to charge them, UPS (NYS: UPS) announced on Friday its latest price hike.


Effective December 31, 2012, UPS says it will raise average rates charged on UPS Air and U.S. originating International Services by 4.5%, and up UPS Ground rates by 4.9%. To be exact, UPS is raising the base rates on UPS Air and International Services by 6.5%, but it's cutting its fuel surcharge by two percentage points -- but that still works out to 4.5%.

Similarly, UPS Ground's rate hike comprises a 5.9% base boost, mitigated by a single percentage point reduction in the fuel surcharge. UPS Next Day Air Freight, Second Day Air Freight and Three-Day Freight rates for shipments among U.S., Canadian, and Puerto Rican locations will also rise 4.9%.

What's next?
As a general rule, whenever one member of the shipping duopoly raises its rates, its counterpart announces a similar hike in short order. And in fact, FedEx (NYS: FDX) announced a similar rate increase of its own for 2013, in September.

Even so, rate hikes from just the two main private shippers won't be great news for companies that rely heavily on these firms to get their goods to consumers. For example, Amazon.com (NAS: AMZN) , which generally eats the cost of shipping for its Prime customers and anyone who can scrape together an order of $25 or more, is going to be a loser from this latest round of rate hikes. Distant rival Overstock.com (NAS: OSTK) , which has a free shipping offer of its own right now, may also be affected.

Who wins?
About the only organization the rate hike is good news for -- other than UPS and FedEx -- is the U.S. Postal Service, which earlier this week reported a record $15.9 billion loss for fiscal 2012. After all, in announcing its rate hike, UPS mentioned that it's seeing more customers look for cheaper, albeit slower shipment options. And if there are two things USPS is good at, they are cheap prices ... and slow service.

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The article Recession? UPS Laughs at Your Recession originally appeared on Fool.com.

Fool contributor Rich Smith has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com, FedEx, Overstock.com, and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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