On September 16, 2019, FedEx announced their 2020 shipping rate increase. The increase goes into effect on January 6th, 2020 and will apply to Express, Ground, Home Delivery and Freight services.
Before we get into the details of the rate increase, a couple of points noted below are worth highlighting:
- FedEx opted NOT to renew their ground or express shipping contract with Amazon.
- In September, FedEx reported its first quarter fiscal year 2020 earnings that missed analysts’ views and the company also lowered its guidance for full-year 2020. On a GAAP basis, FedEx’s earnings dropped to $745 million or $2.84 per share in this first quarter from $835 million or $3.10 per share in the prior year same quarter.
What does the rate increase really mean?
FedEx states shipping rates will increase by an average of 4.9% for Express and Ground services, while FedEx Freight will increase the shipping rate by an average of 5.9%. Shipping rates for FedEx SmartPost, used for low-weight residential shipments will also rise.
The 4.9% and 5.9% increase respectively, only apply to transportation rates but there are many common accessorial fees that have increases much higher than the stated amount. Accessorial fees or charges are any fees other than the actual transportation cost. We will break these down for further review later in this article.
But what about the actual transportation rates? While the overall average for each increase per service, weight, and zone will somehow pan out to 4.9%, both FedEx and UPS strategically analyze each individual rate, targeting the highest increases in a way that maximize their profits. No surprise, especially given the first quarter results from FedEx and the loss from Amazon business.
Let’s look at the average increase broken down by domestic zone. While the Ground rate stays fairly consistent at 4.9%, it becomes apparent that FedEx is targeting some of their steepest increases towards very specific domestic zones with Express Saver service. Express Saver (3-Day) has a large percentage increase across every zone. As for overnight services, zones 7 and 8 are seeing a significantly higher than average increase; thus it appears FedEx is taking advantage of the fact that if a shipper needs to get something across the country overnight, they will likely pay for the service out of urgency, regardless of cost.
To add another perspective, we broke out the rate increase by weight range in the table below. While the table and graph above shows how the increase compares by zone and service, even when we look at the weight and service, Express Saver is seeing the largest increase across the board.
Overall, we see that the higher zones have larger increases than the lower zones for Express services, which will generally have a greater impact on shippers who have one distribution center.
As we noted above, Express Saver (3-day) has the largest increase than any other service. But it’s interesting to note that this service is often distributed on the same network as the Two-Day service and was likely a lower margin service in the past.
These charges are never highlighted into the rate mix by the Parcel Carriers because the rate increases in these areas are much greater that the average increase of just the freight cost.
The accessorial chart below displays the full list of accessorial increases announced by FedEx and gives you a perspective of how the rates have increased over a three-year period. As expected, some of the most dramatic increases target the Carrier’s most undesirable freight types: heavy and bulky packages. Additional handling for these packages is seeing increases in weight and dimension areas, while oversized packages have now been broken out by service type.
- Additional Handling (Weight): increases to $24, a 20% increase over 2019
- Additional Handling (Dimensions): increases to $15, an 11.1% increase over 2019
- Oversize Fee Ground and Express: increases to $100, an 11.1% increase over 2019
- Oversize Fee Home Delivery: increases to $120, a 33.3% increase over 2019
We also see hefty increases for the Extended Delivery Area Surcharge or DAS. Delivery to zip codes which fall into the extended delivery area will have double digit percentage increases compared to the non-extended delivery areas. These increases represent some of the highest increases yet YoY.
- Standard Delivery Area Surcharges increase – ranges from 4.8% – 9.6%
- Extended Delivery Area Surcharges increase – ranges from 16.1% – 27.8%
The residential surcharge for both Express and Home Delivery shows increases by over 5% from the 2019 rates. This surcharge is always an interesting one because even though FedEx is willing to deliver to residential areas, they still tack on this surcharge to every delivery made to such areas. And lastly, let’s note the over 6% increase for the Address Correction surcharge; yet nowadays, shippers can nearly or completely avoid Address Correction fees by putting systems and checks in place which will limit their exposure to this charge.
An all-encompassing comparison of the FedEx rate increases for 2019 and 2020 for both Domestic and International services can be downloaded here.