UPS Set to Increase Rates Amid Higher Labor Costs United Parcel Service Inc., facing higher labor costs from its new contract with the Teamsters union, said it plans to raise rates for most shipments by at least 2.9%, including the biggest jump in ground-delivery prices in at least seven years. The size of the increases was larger than many analysts expected, indicating the delivery giant expects many customers to put up with the higher expense despite the stubbornly weak economy and growing competition that includes an aggressive ground-delivery expansion by rival FedEx Corp., Memphis, Tenn. The rate rise also will help UPS offset annual wage and benefit increases of about 4% under last summer's six-year contract agreement with the Teamsters, which represents about 230,000 drivers, package sorters and other UPS workers. Christine McManus, a UPS spokeswoman, said the new contract was just one of "hundreds of factors" that contributed to the coming rate raises, which take effect Jan. 6. The higher rates at UPS are likely to trigger similar moves during the next few weeks by FedEx and Seattle-based Airborne Inc., since they typically follow UPS's lead on prices for ground deliveries, said Doug Caldwell, an analyst at AFMS Transportation Management Group, a Portland, Ore., consulting firm that helps negotiate delivery contracts. FedEx usually tends to roughly match UPS on rate increases for faster-moving air shipments. UPS said it will boost prices for ground deliveries an average of 3.9%. Such shipments generate about half the company's revenue. Rates for overnight deliveries will climb 3.2%. International rates on shipments from the U.S. will rise 2.9%. The unusually big increase in ground-delivery rates and the smallest rise in the price of air shipments since 1999 "indicate to some degree where management expects the most robust growth to be" next year, said James Winchester, an analyst at Lazard LLC. Many delivery clients have responded to the economic downturn by shifting packages from planes to trucks, cutting their shipment costs in half or more. Such penny-pinchers aren't likely to switch back because of the coming 4% rise on ground items. Last summer's double-digit price jump by the U.S. Postal Service on Priority Mail shipments also gave UPS extra room to boost its ground-delivery rates. The Postal Service said it hopes to put off the next increase in postage rates until 2006. UPS also announced plans to raise several add-on fees that don't fall under normal delivery pricing. But the number of extra fees being raised is smaller than that of a year ago, said Satish Jindel, a transportation consultant at SJ Consulting Group Inc., with the charge for a Saturday delivery climbing for the first time since 1992, to $12.50 from $10.