FedEx rolls out rate increases for various service offerings

Not long after its key competitor, UPS, rolled out rate increases for several of its service offerings, Memphis-based global freight transportation and logistics services provider FedEx this week rolled out some rate increases of its own.

One of the new rate changes announced by FedEx is for its fuel surcharges for its domestic package and express freight services—FedEx Ground, FedEx Home Delivery, FedEx International Ground, FedEx International, and FedEx Freight—which will go into effect on June 9.

These fuel surcharges include:

• an 18.5% increase for fuel based on the USGC jet fuel index value that is between at least $1.64 per gallon but less than $1.85 per gallon up to a 20.25% increase for fuel at least $2.31 per gallon but less than $2.36 per gallon, for package services and express freight services;
• a 19.5% increase for fuel, based on the U.S. on highway (diesel) index value, between at least $3.01 per gallon but less than $3.28 per gallon, up to a 21.25% increase for fuel at least $4.00 per gallon but less than $4.09 per gallon, for FedEx Ground, FedEx Home Delivery, and FedEx International Ground;
• a 22.5% export increase and a 26.0% import increase for fuel based on the USGC fuel surcharge index between at least $1.71 per gallon but less than $1.75 per gallon, up to a 22.25% export increase and a 26.0% import increase between at least $2.19 per gallon but less than $2.23 per gallon, for FedEx international; and
• for FedEx Freight, which is based on the U.S. on-highway (diesel) surcharge index value, the company’s LTL and TL fuel surcharge will be 31.25%, when the EIA Fuel Index is at least 338, up to 32.10%, when the EIA Fuel Index is at least 363

FedEx also made changes to its Delivery Area Surcharge (DAS) Zip code list for FedEx U.S. package services, which went into effect on June 2. And effective June 1, the company increased its Late Payment Fee from 8% to 9.9% of total past-due invoice balance.

“We regularly evaluate our shipping rates and fees and adjust them when needed,” said FedEx. “This enables us to keep investing in our business so we can continue delivering the shipping solutions you need and the excellent service you’ve come to expect from us.”

Industry stakeholders have told LM that surcharges are increasingly viewed as a lever that carriers are heavily utilizing to improve revenue yields—especially with package volume growth a major issue for most carriers. What’s more, they maintain that in general, at a macro-level, the current rate and pricing environment is more favorable for shippers than carriers. This is being driven by supply exceeding demand, leading to excess capacity in many parcel networks, with carriers utilizing dynamic pricing and surcharges to maintain yields.

In assessing these FedEx rate increases, Jerry Hempstead, president of Orlando-based Hempstead Consulting was direct, explaining that, “FedEx is not going to let UPS’ recent price increase go unanswered. UPS has given FedEx an early Father’s Day present. Where can a shipper go? Both carriers pretty much did the same thing.”

And when UPS previously raised its rates last month, he observed that a FedEx rate increase was on its way.

“In a landscape that for all intents is a duopoly, the carriers telegraph to each other what they expect the other to do. So, I fully expect [FedEx] to match this increase as quickly as they can after they dissect these increases,” he said. “Unfortunately, there is little the shipper can do if in fact both carriers enact these changes. When one’s contract comes up for review you can add these surcharges to items for which you would like relief from all or part. Add it to the list.” 

Paul Yaussy, Senior Director of Parcel Consulting, for San Diego-based Shipware, said that FedEx following UPS's recently-announced changes to DAS Zip Code realignment and fuel surcharges, each result in potentially large cost increases for shippers. 

“For example, the fuel surcharge is increasing 200 basis points, which is automatically a large mid-year price increase,” he said. “Of particular note on this fuel surcharge increase, FedEx also adjusted the bands used to assess the fuel surcharge. This very nuanced change increases the size of the bands as the actual cost of fuel decreases, which, by the way, is forecasted for the coming months.  This allows FedEx to capture the higher fuel surcharge even as the actual cost of fuel is decreasing. On the flip side, as actual fuel increases beyond today’s levels, those bands were reduced so FedEx can increase the surcharge much faster. These changes to the matrix are very nuanced and likely unnoticed by the average shipper. Also, interesting is the timing of the announcement. Perhaps it’s coincidence and simply following the UPS increase a couple weeks ago. Or, perhaps it was delay until June on purpose to improve revenue quality immediately in the new FedEx fiscal year. This increase effects almost every shipper as a limited number of shippers can achieve fuel waivers or caps with FedEx.”

In its fiscal third quarter earnings announcement in March, FedEx said that quarterly revenue, at $22.16 billion, increased 2% annually, and operating income, at $1.29 billion, rose 4%. Earnings per share, at $4.51, fell short of Wall Street expectations, at $4.56.