FedEx doesn’t follow UPS with a holiday delivery surcharge — at least not yet

As reported by Digital Commerce 360
Tuesday, July 27, 2017

Revenue from FedEx Ground grew by 9.1% year over year in fiscal 2017, something the company attributes in part to a higher average daily package volume.

FedEx Corp. has not yet announced if it plans to impose a surcharge to packages shipped late in the holiday season—a move rival UPS Inc. made last week.

FedEx chief marketing officer Rajesh Subramaniam told analysts on the company’s Q4 earnings call last week that the company is considering a peak pricing structure during the holidays, but no decisions have been made about how much such surcharges could be or if they would be implemented.

“We are focused on ensuring that we are compensated for the investments we make to deliver outstanding service during peak,” he told analysts on the call, according to a transcript from Seeking Alpha. “We continue to work directly with a relatively small number of large customers that drive the majority of the surge and demand to ensure that we have appropriate pricing related to volume expectations and capacity needs.”

Last week, UPS rolled out a slew of peak pricing initiatives that will go into effect Nov. 19. Retailers will feel the biggest impact during the week before Christmas, when consumers are ordering last-minute gifts. From Nov. 19-Dec. 2, all packages shipped with UPS through Ground Residential will have a 27-cent surcharge tacked on. During the week before Christmas–Dec. 17-23–that surcharge will also be in effect, in addition to an 81-cent surcharge on packages shipped via Next Day Air Residential and a 97-cent surcharge on packages shipped via 2nd Day Air Residential and 3rd Day Select Residential.

Logistics executives say they think it’s only a matter of time before FedEx makes a similar surcharge announcement.

If FedEx doesn’t add a surcharge because it hopes to pick off UPS traffic, it will still face the volume strain on its fulfillment and delivery network, says Tony Nuzio, founder and CEO of logistics consulting firm ICC Logistics. “My sense is they’re going to come out and do a ‘me too’ on this,” he says.

The U.S. Postal Service has stated that it will not implement similar charges but a spokesman declined to specify why it won’t implement those charges.

Nuzio says he sees these surcharges becoming the new normal.

“I think this is something that the retailers are now going to have to factor into their freight budgets,” he says. “[Retailers] are going to have to look at the delivery schedule that UPS came out with, when the surcharges will apply to see if they can incentivize their customers to take deliveries prior to the peak times. I think they will also look to offer alternative delivery methods, such as pickup at the store.”

FedEx reported revenue from its FedEx Ground segment, which is where most e-commerce orders are handled, of $4.68 billion during the just-ended 2017 fiscal year, up 9.1% from $4.29 billion the previous year. The carrier attributes that growth in part to the number of packages shipped each day increasing 3% on average.

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Ken Wood is the founder of LJM Consultants. LJM helps clients negotiate “Best in Class” UPS/FedEx agreements. LJM was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. To learn how LJM Consultants can help your company get the parcel contract you deserve, call 631-844-9500 or email kenwood@myLJM.com.