Announces Higher Rates, Surcharges after Tough Quarter, Beyond what’s Needed to Match Rising Operating Costs Some Say

After announcing disappointing earnings in its most recent fiscal quarter last week, blamed in large part on costs connected with a severe labor shortage, FedEx’s stock price dropped more than 11%, falling to its lowest level since a year ago.

Supply Chain Digest Says...   After parting ways with Amazon and focusing on ecommerce, FedEx has targeted small and mid-sized shippers while it capped volumes from large customers. What do you say? Click here to send us your comments Click here to see reader feedback

So what’s a parcel company to do when volumes are high but profits are falling? Raise prices, of course.

This week, FedEx announced rates for US domestic, export and import services will rise an average of 5.9% starting January 3 - a least a percentage point above usual new year general rate increases. And of course, also as usual, that overall average conceals much sharper increases for some services.

The rate hike applies to shipments using FedEx Express, FedEx Ground and FedEx Freight (the company’s LTL unit).

Numerous surcharges are also rising for FedEx customers. The company will raise its fuel surcharge on Nov. 1, and a slew of new surcharges are coming in January.

For example, if shipments are not ready for pick-up when a FedEx driver arrives, it will trigger a “no shipment tendered” surcharge, commencing January 17.

Home delivery residential surcharges will rise by 9.2%, while ground delivery surcharges on rural area deliveries will rise by a whopping 61%, according to one estimate.

According to the Loadstar.com web site, one of FedEx’s top ten customers has reportedly been hit with an annual cost increase of $100 million.

Relative to the surcharges hike, FedEx said in a statement that: “These charges reflect incremental costs associated with the challenging operating environment, while enabling FedEx to continue investing in service enhancement, fleet maintenance, technology innovations, and other areas to serve customers more effectively and efficiently.”

Some see things differently.

"For the past 18 months, FedEx has made it clear that its moves are not designed to offset costs but to enhance margin," Joe Wilkinson, vice president of transportation consulting for enVista, told FreightWaves magazine.

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“With what they’re doing over the course of the year, the actual increases will be much higher [than 5.9%],” said Haber, CEO of parcel logistics consultant Spend Management Experts.

That while many parcel shippers are calling out service problems with FedEx, as volumes exceed its capacity.

After parting ways with Amazon and focusing on ecommerce, FedEx has targeted small and mid-sized shippers while it capped volumes from large customers. Some experts say that’s because large shippers can negotiate lower rate hikes than smaller ones, and with its network at capacity, moving more parcels for smaller shippers with higher rates will increase profits.

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