UPS to maintain money-back guarantees for peak air service

UPS Inc. said that it will maintain its money-back guarantees for peak-season deliveries of next-day air shipments in domestic and international commerce.

UPS’ move, disclosed on Monday, runs counter to a decision earlier this month by rival FedEx Corp. (NYSE: FDX) to suspend money-back guarantees for peak-season deliveries of air express shipments within the U.S. and for export from the country. The FedEx suspension runs from Dec. 13 to Jan. 2. 

At the time of the FedEx announcement, UPS (NYSE: UPS) said it had no plans to change its policy for its peak season. UPS doesn’t put start or finish dates on peak season, though with the plethora of online holiday returns, its peak cycle clearly stretches beyond Christmas and into January.

UPS’ money-back guarantees on expedited international deliveries depend on the distance and the time zones separating the origin and destination points. For example, a package shipped on the evening of Nov. 29 from UPS’ main global air hub in Louisville, Kentucky, and bound for Cologne, Germany, the carrier’s European air hub, will be guaranteed if the package arrives on Dec. 1 either by 2 p.m. or by the end of the day, depending on the air service selected.

For decades, FedEx and UPS offered money-back guarantees on late or missed deliveries as long as affected shippers could provide sufficient proof of the original service commitments.  However, both carriers suspended all money-back guarantees during the spring of 2020 as pandemic-related changes in buying behavior sent delivery volumes spiking and made it impossible for the carriers to honor all of their guarantees. 

Both subsequently reinstated money-back guarantees for next-day air services. However, they never restored any of their other guarantees.

Because ground deliveries are relatively low margin, the carriers have no financial incentive to restore money-back guarantees and risk relinquishing already thin profits on the business. The exception is for next-day air services, which carry much higher margins, some of which could be parted with.

No one following the industry expects either carrier to fully restore their service guarantees, partly because there is no overwhelming shipper pressure to do so. In addition, it can be costly and time-consuming for shippers to scour numerous invoices to unearth the proof the carriers generally require to issue a refund.

UPS has said publicly that its high on-time delivery rates — generally in the high 90% range — render service guarantees unnecessary. FedEx has never made such a public pronouncement.

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Source: freightwaves - UPS to maintain money-back guarantees for peak air service
Editor: Mark Solomon