With Profits Surging, FedEx Continues to Increase Rates – WHY… because they can!

by LJM Group
The latest FedEx increase applies to how the Additional Handling Surcharge will be implemented.  Currently, FedEx adds an Additional Handling Fee of $10.50 to any package with a length exceeding 60”. On June 1st, 2016, they will be reducing that maximum length from 60” to 48”. Keep in mind, on Jan 1st, 2016, FedEx subjected everyone to a nearly 17% increase on the Additional Handling Surcharge when it raised it from $9 per package to $10.50 per package. Talk about a double-whammy…with-profits-surging
In summary, the maximum length of any one side of a package, before the $10.50 surcharge kicks in, will be reduced from 60 inches to 48 inches beginning June 1st, 2016.  This is a significant increase for shippers in many industries, including: textiles, sporting goods, home décor, lighting, apparel, promotional products, automotive, and many others.
This will effectively be the 5th rate increase that FedEx has executed in less than 18 months.  The following is a timeline of every FedEx rate increases that has come into effect in this very short period of time:
  • June 1, 2016:  FedEx will be reducing that maximum length from 60” to 48” to incur an Additional Handling Surcharge.
  • January 4, 2016: FedEx increased shipping rates by a stated average of 4.9% for U.S. domestic, U.S. export and U.S. import services.  FedEx also increased many of the surcharges.
  • November 2, 2015.  FedEx increased the fuel surcharge table by 0.75%.
  • January 5, 2015: FedEx increased shipping rates by a stated average of 4.9% for U.S. domestic, U.S. export and U.S. import services.  FedEx increased most of their surcharges.
  • January 5, 2015: FedEx Ground applied dimensional weight pricing to all shipments. Previously, FedEx Ground added dimensional weight pricing only to packages measuring three cubic feet or greater.
Historically, UPS and FedEx follow one another when it comes to pricing.  As of March 31, 2016, UPS has yet to make an announcement regarding the change, however, we can expect that similar action will be taken.
The problem for most companies is that they aren’t always in tune with these individual changes, yet most are quite aware their shipping costs are increasing rapidly.  Unfortunately for the shipper, but fortunately for the carriers, those shippers that are aware of the changes are usually not familiar with processes to put in place to help mitigate them. Outside help from a professional parcel consulting firm is highly recommended when it comes to negotiating carrier agreements.
For the 1st quarter of 2016, FedEx Corp (NYSE: FDX ) reported revenue of $12.7 billion, or a nearly 9% increase from the prior-year period.  This comes shortly after FedEx announced the change to the length of a package in their additional handling charge calculations.  CEO Frederick Smith credited his company’s broad portfolio of business solutions for the solid quarter.  It’s fair to assume that the strong e-commerce growth (up 14.6% for 2015 vs 2014 and up 15.4% for 2014 vs 2013), accounting for 7.5% of total sales, as well as the sizable rate increases that FedEx continues to apply plays a significant role.
Additionally, for the 1st quarter of 2016, FedEx reported an adjusted profit of $2.51 per share, up 24% from Q3 2015.  FedEx’s small to medium size customers (up to approximately $10mm/year) are the ones that are getting hit the hardest and will continue to see their rates increase substantially.  Many larger shippers have verbiage written into their agreements that help protect them against some of the changes.  Although revenue dropped 1% year over year in express shipping, operating margins rose 320 basis points to 9.1%, boosting operating income by 51% to $595 million. Lower fuel costs, while increasing the fuel surcharge table also benefitted FedEx.
FedEx introduced an outlook that’s suggestive of continued growth. It tightened its forecast for the remainder of fiscal 2016 to a range of $10.70- $10.90 in full-year EPS (prior forecast was $10.40-$10.90), and CFO Alan B. Graf, Jr. noted in the press release that the company’s “positive financial momentum should continue into our upcoming fiscal 2017, where we expect to report solid growth in earnings and cash flow.”
Shippers needing help understanding the impact of these rate increases for budgeting, cost reduction or other purposes are invited to contact us at (631) 844-9500 or email LJM Consultants can perform a custom impact analysis of these price increases and offer help mitigating the changes.
Thomas Andersen has more than 15 years transportation and revenue management experience. Since the early part of the 2000’s, he has focused exclusively on small parcel contracts. Mr. Andersen has negotiated thousands of parcel agreements as the Senior Pricing Manager at DHL Express and hundreds more on behalf of clients with UPS, FedEx, OnTrac, GSO, Eastern Connection, LSO, and others.
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