On September 20, 2021, FedEx announced its 2022 shipping rate increase. The increase goes into effect on January 3rd, 2022 and will apply to Express (U.S. domestic, U.S. export and U.S. import services), Ground, Home Delivery and Freight services.
This year is especially different because shippers have already faced incremental fee increases throughout 2021 on certain accessorial charges as well as on peak-season fees.
What does the rate increase really mean?
FedEx shipping rates will increase by an average of 5.9% for Express, Ground, and Home Delivery Services. FedEx Ground Economy, previously known as SmartPost, and generally used for low-weight residential shipments, will also rise.
Perhaps you had to read the last paragraph a second time. After years of both carriers maintaining a “flat” stated increase of 4.9%, you can assume that, rather than representing the actual expected year-over-year spend increase, the 5.9% functionally acts as more of a floor or bare minimum increase for most shippers. Here we will break down both the impact on transportation rates and additional increases to watch out for from changes to accessorial rates.
Let’s start with transportation rates. While the overall average for each increase per service, weight, and zone will somehow pan out to 5.9%, both FedEx and UPS strategically analyze each individual rate, targeting the highest increases in a way that maximizes their profits.
Let’s look at the average increase broken down by domestic zone. While the Ground rate increases at 6% remains consistent with the stated rate, a deeper dive will show where FedEx is truly hoping to maximize their margins in 2022. As you can see in the below table, the 5.9% stated increase has given FedEx the leeway to truly hijack the rates for services such as 2 Day AM and especially Express Saver 3 Day, where tariffs are increasing 10% practically across the board for all weights and zones.
With each annual rate increase, the carriers aim to both strategically increase margins while also driving shipper behavior to their needs. While there’s no doubt that FedEx’s profit margins will rise with the changes to 2022, the way they are integrating this is quite telling. For example, on Overnight services, the carriers will typically introduce lower increases on lower zones (less utilized) while hiking up the increases on mid to higher zones (more utilized) so that they can still average out to a number closer to the stated average. The opposite is true this year, with the steepest increases coming on zones 2-4 for lighter weight shipments, especially within the standard overnight service.
Perhaps FedEx has realized that they maximized what can be reasonably charged on long-distance overnight shipments and is instead bringing the remaining zones up to equilibrium this year. It’s also possible that, along with the focus on increases to 3 Day and 2 Day AM, FedEx is trying to price out both their least desirable as well as their lesser utilized lanes in order to streamline operational efficiency and margins in response to the unprecedented demand (and shortage) of capacity caused by the COVID-19 crisis. (This will become more apparent once we review the impact on 2022 international rates.)
By contrast, standard 2 Day Air, one of the more utilized Express Services, is seeing increases at 4.9% across the board, lower than the stated increase. Perhaps FedEx understands that the very survival of their ECommerce shippers depends on being able to meet time in transit expectations set by Amazon and that short-term profits will result in long-term loss of market share to Amazon, especially as the latter continues to insert itself into the parcel industry.
The below table, which illustrates increases by standard carrier weight breaks, shows again the uneven distribution of carrier increases. The typical carrier pattern has been to hide their steeper increases on lighter weight shipments with lower increases on heavier, less utilized weight breaks. This remains true for some services in 2022, but as you can see, the increases remain consistent across various weights for 2 and 3 Day services.
All these tables, zones, and weights might be a little overwhelming to decipher, and we understand why; the carriers’ very intentions are to overwhelm you. But if you predominantly ship lightweight items, there is one zone and weight combination you need to pay particular attention to: Zone 2, 1 lb. This is your minimum rate, and without a minimum reduction, the increases in the below table represent what you will pay for many of your shipments across various low weights and zones, regardless of your discounts.
Let’s examine how much FedEx is increasing your minimum charges in 2022:
Not surprisingly, all of these minimum rates with the exception of 2 Day Air will be increasing by more than 5.9%!! Additionally, if you currently have a flat dollar reduction to your minimum, that minimum charge will be increasing by an amount higher than what is stated above. This is a good thing; it means you are already at an advantage compared to many other shippers…and it also gives you yet another leverage point when addressing the rate increase with your carrier rep.
Finally, we should take some time to review FedEx’s international changes. If you are an Int’l shipper, you should not neglect this segment, because it’s within certain international lanes that we are seeing the largest increases to any transportation tariffs by any carrier in recent memory…or at least until UPS announces their new shipping rates.
The following table provides a detailed breakdown of FedEx’s 2022 Int’l increases (note that geographic regions are approximate descriptions to best match FedEx’s zone breakdowns). Again, there’s a lot of information here, so we’ll try to summarize the main takeaways below.
- While Export and Priority Import rates are receiving ‘standard’-ish increases, “Economy” Imports from most Asian & South Pacific countries (including Australia/NZ) are increasing by 20-30% in the general 1-30 lbs. range. For those lanes and weights receiving the highest percentage increases, the FedEx Priority rates will only be 2% higher than their so-called Economy rates.
- The weight breaks service illustrates that, like their Domestic services, FedEx is reserving their highest increases to light and mid-weight shipments, with 20 – 30 lbs. often serving as the dividing line between pricing strategies.
- Canada, Southeast Asia, Australia/NZ, and South America are on the receiving end of the higher Export increases.
- Same as Domestic, your minimum charges will be increasing by much more than 5.9% in most cases.
Now let’s not forget nor ignore the particulars of accessorials. These charges are never highlighted in the rate mix by the shipping carriers because the rate increases in these areas are often much greater than the average increase of just the freight cost.
While we don’t yet know all of the 2022 accessorial increases, consistent with the carriers’ recent focus on large and heavy packages, FedEx announced 2022 increases for Additional Handling and Oversize Fees consistent with UPS’s zone-based pricing (introduced mid-2021):
As expected, some of the most dramatic increases target the carriers’ most undesirable freight types; heavy and bulky packages. Depending on the distance shipped from either carrier, you might see up to a 38% increase from 2021 to 2022 on some of your costliest surcharges.
Finally, while we do not yet know the full extent of FedEx’s 2022 increases to accessorials, FedEx has seen fit to announce both the introduction of new surcharges, as well as changes to the pricing structure of existing ones:
- A No Shipment Tendered Surcharge of $77 will be introduced when a pickup is performed but no packages are tendered to the carrier.
- A permanent $1 fee will be assessed on all Ground Economy Deliveries and Returns. (Why not just include in the tariff itself? It would change the averages FedEx uses to calculate the 5.9% ‘stated’ increase.)
- International Out of Delivery or Pickup fees will be priced based on a tiered structure for Int’l area codes. Note the difference between a $3.55 charge on Tier A, and at least a $59 surcharge for Tier C.
- Tier A: $3.55 per shipment
- Tier B: Greater of $45 per shipment or $0.45 per pound.
- Tier C: Greater of $59 per shipment or $0.59 per pound.
- FedEx fuel surcharge tables will increase as well.
As you can see, technological advancements along with a rapidly changing industry are enabling the carriers to not just significantly increase their shipping rates, but to do so in an exponentially more targeted and strategic manner. If the carriers are getting smarter, so too must each parcel shipper in order to not get squashed!