UPS hikes rates on US small packages By Ben Klayman United Parcel Service Inc. (NYSE:UPS - news), the world's largest package delivery company, on Friday boosted 2006 rates for most of its U.S. small-package services. The company, whose shares were up 1.3 percent in midday trading, raised rates for its commercial ground service by 3.9 percent, and air and international services will increase by 5.5 percent. U.S. small-package services accounted for two-thirds of the company's third-quarter sales of $10.6 billion. Rising energy costs and interest rates have led some investors to fear a possible slowdown in the U.S. economy, which package delivery tracks closely. However, analysts said the rate increases were typical every year and shippers have adequately covered higher fuel costs. Fuel costs are one factor in determining shipping rates, but others include responding to increased demand, infrastructure costs and planned investments, a UPS spokeswoman said. "You have both Fedex (NYSE:FDX - news) and UPS basically giving out the same list price increases for 2006 and the message is clear in that neither wants a price war," said R.W. Baird analyst Jon Langenfeld, who rates both stocks "outperform." "If you layer their actions into the fact that you also have the (U.S.) post office increasing rates next year, it seems like the pricing environment is pretty healthy," he added. There will be no changes to most UPS retail rates offered at more than 4,000 locations. Other pricing changes include an increase of 25 cents and 35 cents, respectively, for the residential surcharge on UPS ground and air services. UPS also recalibrated the index used to determine its air fuel surcharge, reducing it by 2 percent but keeping the cap at 12.5 percent. The Atlanta-based company said the reduction will benefit customers as fuel prices moderate. In October, UPS raised the cap on its fuel surcharge for air shipping to 12.5 percent from 9.5 percent in response to surging fuel prices in the aftermath of Hurricane Katrina. "One of the things we look for as verification of a good business model is the ability to raises prices," Morningstar analyst Nicolas Owens said. "This is something that they do every year." In early October, FedEx said it would raise 2006 rates on its FedEx Express service by an average of 3.5 percent. Standard list rates would go up 5.5 percent, offset by a decrease in an overall fuel surcharge of 2 percentage points. FedEx said it would also raise delivery surcharges for some postal codes and for certain residential and Saturday deliveries. It also introduced new retail counter rates for its FedEx Express and FedEx Ground services earlier this month and said changes to its FedEx Ground and FedEx Home Delivery services would be announced later this year. UPS's air fuel surcharge applies to UPS Next Day Air, UPS 2nd Day Air and UPS 3 Day Select and international services. The surcharge index calculation for UPS Ground remains unchanged and is pegged to fluctuations in the U.S. Energy Department's On-Highway Diesel price, the company said. UPS also begins charging for undeliverable packages after three delivery attempts. Delivery Confirmation and Signature Required deliveries each will increase by 25 cents per package and Adult Signature Required will rise by 50 cents.