Will price tweaks help United Parcel Service, Inc. (UPS)?
David Abney, chief executive officer of United Parcel Service, Inc. (NYSE:UPS), said that the world’s biggest package delivery company will implement new pricing strategies during peak season. The company found during the recent shopping season that it had more workers than package volume on some days. To address the increasing demand during holiday season, UPS hired about 95,000 seasonal workers.
UPS’ recent announcement to impose surge pricing during peak demand resembles car-booking company Uber Technologies’ pricing policy which hikes fares as demand soars.
The package delivery company didn’t just hire more seasonal workers but also invested $675 million for improving its network to process more deliveries. That additional infrastructure was required to process the extreme surge in package volume on Cyber Monday. However, it was not required much for other days of the holiday season when demand wasn’t as great.
Kevin Sterling, a BB&T Capital Markets analyst, recently noted that United Parcel Service, Inc. (NYSE:UPS) faced some delivery issues in 2013 and was challenged to put their service right. Hence it undertook network improvement and consumers may witness some sort of surge charges like Uber.
Uber uses a price-surge feature to charge higher fares during peak demand hours, when more people are booking a car service.
Satish Jindel, a shipping consultant and founder of SJ Consulting, noted that UPS needs to address its pricing process as unexpected hikes could result in loss of business from long-standing customers forced to consider other alternatives. UPS may require negotiating peak season surcharge with customers.
FedEx Corporation (NYSE:FDX), a rival package delivery firm, is also likely to follow UPS’ pricing strategy relating to peak season surcharge.
FedEx has relatively smaller network than UPS and its pricing decisions are generally based on broader market conditions, economic conditions and the value of service. The company noted in a statement that the primary concern is to get an appropriate price for the service it provides.
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