United Parcel Service Inc. is raising its shipping prices in 2006, but it is reducing its fuel surcharge index.

The price hike includes a 3.9 percent increase in commercial ground services and a 5.5 percent rise in UPS air and international services. The changes take effect Jan. 2.

However, the Atlanta-based package delivery giant (NYSE: UPS) also will reduce by 2 percent the index it uses to figure out its air fuel surcharge. UPS said this will directly benefit customers as fuel prices moderate and the index pushes the air fuel surcharge below the current 12.5 percent cap. UPS said it is maintaining this cap despite dramatic jet fuel price increases and as its competitors charge 20 percent or more.

The 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.

Also in 2006, UPS 2nd Day Air A.M. guarantees will be accelerated from noon to 10:30 a.m., and Saturday deliveries now can be shipped via 2nd Day Air on Thursday. Even more ZIP codes will be available for UPS Next Day Air Early A.M. delivery on top of this year's July expansion, extending early delivery to nearly 20,000 ZIP codes.

There will be no changes to most UPS retail rates offered at more than 4,000 locations of The UPS Store. Other pricing changes include an increase of 25 cents for the residential surcharge on UPS ground and 35 cents for air services. UPS also now will charge for undeliverable packages after three delivery attempts.

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