October 26, 2017 / 5:06 PM / a year ago

UPS CEO says early peak charges reflect retailer demands

(Reuters) - United Parcel Service Inc (UPS.N) told customers about extra holiday charges for 2018 much earlier than it did this year to give major retailers a full year to plan shipping schedules and defray costs, Chief Executive David Abney said on Thursday.

“We heard clearly from our customers that they do their planning a year in advance,” Abney told Reuters after UPS posted a lower quarterly profit but lifted its full-year earnings forecast partly on rosy expectations for the holidays.

The world’s largest package delivery company announced Wednesday it would include some new 2018 holiday season surcharges and raise surcharges for most residential packages “by a few pennies.”

UPS has worked for years to increase its visibility into customer shipping demands to avoid major package volume spikes ahead of the holidays.

The Atlanta-based company announced its 2017 peak surcharges in June.

“So if (customers) can utilize the weekend before the peak surcharge kicks in, or get it to us the week before, they are going to be able to save, or for things that aren’t Christmas-important, having those ship out the week after Christmas is going to save our customers a lot of money,” Abney said.

The rise of e-commerce and the likes of Amazon.com (AMZN.O) pose challenges for the shipping industry. The costs associated with delivering packages to residential addresses are higher than to businesses, which receive more packages and so bring more revenue per stop.

Shipping firms are scrambling to reduce that extra cost.

Investors have expressed frustration that UPS and main rival FedEx (FDX.N) have had to invest heavily in network expansion to handle soaring lower margin e-commerce volumes.

Separately, Abney said UPS has an “ace-in-the-hole that we hope we don’t have to play” in the event the United States leaves the North American Free Trade Agreement because of its expertise in cross-border supply chains.

Mexico, the United States and Canada are in the midst of tough talks to renegotiate NAFTA. The latest round of formal discussions should take place in Mexico City next month.

U.S. President Donald Trump, who made trade a centerpiece of his 2016 presidential campaign, has repeatedly threatened to terminate NAFTA if Mexico and Canada refuse major changes.

“We have the systems, we have the people, we have the network to adjust to that,” Abney said. “It’s just that if they have these supply chains so scattered across these borders, it’s just going to make it very difficult and could drive up costs for our customers.”

Reporting by Eric M. Johnson in Seattle; Editing by Nick Zieminski

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