FedEx to raise ground service rates 4.9 percent

FedEx Corp. will raise its ground parcel rates in 2012 by 5.9 percent, minus a one-percentage-point drop in applicable fuel surcharges, the company said late Friday.

The FedEx action, which takes effect Jan. 2, will result in a 4.9-percent "net" increase for the company's FedEx Ground customers, FedEx said. The same increase will be applied to the company's home delivery service, FedEx said.

The increase is identical to the 2012 rate hikes announced by rival UPS Inc. late last month.

Recently, FedEx announced a 3.9-percent net increase on 2012 rates for products handled by its FedEx Express air unit. The company will raise its base rate by 5.9 percent but offset the increase with a two-percentage-point cut in applicable fuel surcharges, according to the Memphis-based company.

Rob Martinez, president and CEO of San Diego-based parcel consultancy Shipware LLC, said pricing power remains with the carriers, and that the rate increases are likely to stick because of the carriers' increasing reluctance to discount their rates, the lack of shipping alternatives, and the increasing complexity of the carriers' overall pricing structure.

Martinez said the carriers' public announcements don't reflect the magnitude of the increases, noting that the increases will be greater than average on lightweight parcels, and lower than average on heavier shipments. According to Shipware's client database, 87 percent of shipments weigh 30 pounds or less, while only 13 percent of client shipments weigh 31 pounds or more.

Martinez added that the carriers would generate even greater revenues and profits by raising their fees on so-called accessorials, add-on services that are billed separately from the cost of the basic pickup and delivery. Including fuel surcharges, accessorials account for as much as 30 percent of the typical shipper's parcel bill, said Martinez, who presented at a Dec. 2 webcast hosted by investment firm Stifel, Nicolaus & Co.

According to information from the UPS and FedEx websites, both carriers will increase prices on a slew of accessorial charges in 2012.

Martinez noted that UPS's third-quarter domestic yields—revenue per pound—rose 6.5 percent year over year, although domestic volumes were flat. The discrepancy, he said, reflects the cumulative impact of the company's 2011 rate increases, higher fuel surcharges, and a more disciplined approach to discounting, according to a Stifel, Nicolaus transcript of Martinez's remarks.

Stifel said in its comments that many parcel shippers still operate inefficiently, and that they can still reap cost savings in a rising rate environment through better modal optimization, namely converting more parcels from air to lower-cost ground deliveries.