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On September 22nd, FedEx customers learned that they would endure the largest rate increase in FedEx’s history, after a year defined by record high fuel prices and rising costs across the board. Following years of consistent increases at 4.9%, last year’s increase of 5.9% has been surpassed once again by a 6.9% increase effective January 3rd, 2023. Like in past years, this announcement came with a series of increases and changes to other accessorial charges, which, depending on each shippers’ profile, will drive that increase well above 6.9%. If history is any indication, UPS will likely follow with similar increases, so shippers of all sizes should be asking themselves, what are these changes, how do they affect me, and what can I do to mitigate these increases?
The 6.9% rate increases communicated by FedEx are not a consistent increase across all services, but simply an average. For ground services, the increase comes in at 6.6%, however, express services vary from 6.6% for First Overnight to as high as 9.95% for Express Saver. For shippers primarily using international services, they should expect closer to an 8% increase in freight costs alone. Below are charts detailing the average percent increase for all services.
Although these averages give you an idea of the increases in each service, the profile of how and where you ship will also greatly affect the increase. For ground services, rate increases for shipments going to zone 5-8 are increasing at 7.65% whereas shipments to zone 2-4 are only increasing 6.22%. For Priority Overnight, zones 2 and 3 see the highest increases in lower weights but in the higher weights, this drops back down. These are just examples of the complexities that exist in each service’s price increase. If you are trying to quantify the effect of the increase, by simply applying the 6.9% average increase to your overall spend, your total shipping costs will very likely exceed that number.
Another factor driving your individual increase is how many of your shipments are hitting the minimum and how many are receiving their full discounts. For clarity, the minimum charge for domestic shipments is the zone 2, 1 pound list rate. When FedEx applies the discount in your agreement, they will lower the list rate until the minimum is reached. For ground services, although the base rate increase is 6.6%, the minimum charge increased by 7.91%. What this means is if a shipper was exclusively shipping packages hitting that minimum, their increase would effectively be 7.91% (before considering accessorial increases). Below is a chart detailing the increases in minimum charges for domestic services.
Moving on to the “Other transportation-related fees”, shippers are looking at an average increase of about 9.5% overall. These fees are additional charges determined by factors other than just the weight, zone, and service being used. Although not included in the announced 6.9%, these will affect all shippers to a varying degree. There are more than forty increases coming in 2023 and although these changes are expected, some are starker than others. Increases to additional handling can vary from 14% to 19% and fees for oversize charges are increasing anywhere from 17% to 23%, which is impactful considering these were already significant charges.
As routine as these increases are, the Carriers introducing a new fee is a typical feature of these announcements as well; this year is no different. FedEx announced they would be reclassifying 3,833 zip codes from the Delivery Area Extended designation to the new Remote Area Domestic designation, which carries an increased fee. In 2022, the highest fee incurred for a shipment to an extended delivery area was $6.50, in 2023, for those 3,833 zip codes, that charge will increase to $13.25. For context, there are only 41,683 zip codes in the United States, so this increase applied to 9.1% of them. For the other zip codes which remain in the delivery area surcharge designation, they also will receive an average 8.5% increase. Of all the increases, this is the one that shippers are most likely to overlook in the new year and incur a large and unexpected spike in spend. If your customer base is not in urban areas, pay close attention.
Starting in June 2021, FedEx introduced a 6% late fee. Unfortunately, for many shippers, late payment to FedEx was routine and many unnecessary charges were incurred. This year, FedEx announced late fees will be rising from 6% to 8% of the outstanding amount. As this fee climbs, shippers need to proactively manage their invoices to ensure issues like this are identified and rectified quickly.
Unfortunately, rate increases cannot be avoided, so shippers need to do everything they can to make sure they are maximizing their discounts and preventing themselves from incurring needless fees. The best way to ensure you are not overpaying the Carriers is by having a best-in-class agreement. Shipping costs are likely your second or third largest expense and can make the difference between getting a new client or losing a client. No company wants to learn their competition is paying less for shipping than you are. LJM is here to provide a free contract analysis to see where your agreement stacks up against shippers of comparable size.