FedEx Corp.'s noncontract air customers will see their 2016 rates rise at a faster clip for slower transit times than for the company's premium services that promise faster deliveries, according to data provided today by parcel consultancy Shipware LLC.
According to Shipware data, domestic rates for "Priority Overnight," which guarantees deliveries by 10: 30 a.m. the next day to most U.S. addresses, will rise by 4.69 percent. From there, however, the costs escalate well above the average increase. Prices for deliveries using the unit's "Standard Overnight" service, where parcels are delivered by 3 p.m. the next day, will climb by 6.05 percent, according to Shipware data. Rates for second-day morning deliveries will increase by 7.6 percent, two-day afternoon services by 7.67 percent, and three-day deliveries, known as " Express Saver," will rise 7.34 percent, Shipware said. The services are offered by FedEx Express, the company's air and international unit.
Memphis-based FedEx announced late Tuesday that it would raise its published rates, effective Jan. 4, by an average of 4.9 percent on U.S. domestic and U.S. export and import services. The one exception is FedEx "SmartPost," a service performed in conjunction with the U.S. Postal Service. Those rates, which apply to packages tendered by FedEx to USPS for last-mile deliveries to residencies, have yet to be announced, though the company said those would increase as well.
FedEx's ground-parcel customers will also absorb higher rates than the average increase, mostly for lighter-weighted parcels, according to Shipware data. Rates charged by FedEx Ground, the company's ground-delivery unit, will rise 5.8 percent for parcels weighing one to five pounds. Rates will rise 5.5 percent for parcels weighing six to 10 pounds, 5.4 percent for parcels weighing 11 to 15 pounds, and 5 percent for parcels weighing 16 to 20 pounds, according to Shipware data. Most packages tendered for ground deliveries weigh less than 20 pounds. By contrast, rates on packages weighing 51 to the maximum of 150 pounds will increase less than the average, according to Shipware.
The 2016 ground increases will be distributed more evenly across the weight classes than were the 2015 ground increases. In 2015, the hikes were heavily skewed towards lighter weighted traffic, Shipware said. The minimum delivery charge for transporting a ground package will be $6.94, a 5-percent increase from 2015 levels, Shipware said; between 2006 and 2016, the minimum charge for ground deliveries has risen a cumulative 82.6 percent, Shipware said.
The consultancy said it would analyze the impact of rate increases by FedEx Freight, the company's less-than-truckload (LTL) unit, and for its international services at a later date.
In recent years, FedEx and arch-rival UPS Inc., which hold a near-duopoly on U.S. business-to-business (B2B) parcel services, have raised their published rates at higher levels than the announced averages, depending on the type of service or, more predominantly, the weight breaks of their shipments. Atlanta-based UPS has yet to disclose its 2016 rate increases.
Rob Martinez, Shipware's president and CEO, said the faster pace of increases on the less-urgent FedEx Express services reflects increased customer demand and higher costs to provide the services. "The fact that FedEx, and UPS, continue to levy higher increases on less-premium express services ... than [on] more premium products ... indicates to me that those services carry a higher cost to serve," Martinez said in an e-mail.
Besides the rate increases, FedEx will also hike the costs of a broad range of "accessorial" charges, fees for services beyond the basic pick-up and delivery services. For example, effective this Nov. 2 FedEx Ground will impose a $110 special fee on "unauthorized" shipments, which are packages whose dimensions or combined dimensions and weight are beyond the unit's maximum handling capabilities and would be transported at its discretion. The fee is in addition to the rate charged to move the shipment, according to Shipware data.
FedEx will also boost its surcharge for "oversize" shipments—packages that weigh less than 150 pounds but exceed 108 inches in length or 130 inches in combined length and girth—to $67.50 per shipment from $57.50, Shipware said. The increase, which is on top of the shipping rate, takes effect Jan. 4.FISCAL FIRST-QUARTER RESULTS
The rate and fee adjustments came the day before FedEx released its fiscal-2016 first-quarter results, which to some extent felt the combined sting of a slowing world economy; the rising value of the U.S. dollar, which curbed export activity; a rise in inventory levels in the U.S. that muted shipping activity; and a drop in capital expenditures as businesses turned cautious during the period. While FedEx Express had a fairly solid quarter, operating income and margins for FedEx Ground and FedEx Freight were pressured by higher operating costs, and by reduced demand due to a drop in industrial production during the period.
Yesterday, FedEx forecast that U.S. industrial production would rise 1.6 percent in 2015, a drop from the 2.2-percent increase it predicted in June. FedEx Freight, which moves a lot of industrial goods, was more impacted by the decline than the two other units, company executives said. Industrial production should increase 2.6 percent in 2016 as manufacturing gets back on track, FedEx predicted. U.S. GDP should rise by 2.5 percent in 2015 and 2.8 percent next year, the company predicted. World GDP should gain 2.8 percent this year and 2.9 percent in 2016, it forecast.
FedEx Express' fiscal operating income and margins rose 45 percent and 5.5 percent, respectively, over the prior-year period, despite a 4-percent drop in revenue due to the impact of lower fuel surcharges and unfavorable currency exchange rates. FedEx Ground's revenues jumped 29 percent from last year's quarter, helped by an 11-percent jump in yields—including the impact of fuel surcharges—resulting from a shift in pricing on parcels measuring less than three cubic feet based on their dimensions rather than their actual weight. However, operating income fell 1 percent and margins dropped 18.4 percentk partly due to higher package sizes and partly to an increase in reserves set aside for self-insurance premiums.
The unit is building hubs in Allentown, Pa., Ocala, Fla., and Tracy, Calif., outside of Sacramento, to accommodate expected increases in B2B and business-to-consumer (B2C) traffic. Construction on two of the hubs has already begun, with work on the third set to begin later this fiscal year, according to Angela Wheland, a FedEx Ground spokeswoman. Work on the third will start later this fiscal year, Wheland said. FedEx's 2016 fiscal year ends next May 31. All three hubs should be operational within the next one to two years, Wheland added.
FedEx Freight posted flat year-over-year revenue, a 21-percent drop in operating income and 10.4-percent decline in operating margins. Average daily shipments fell 1 percent, pressured by weak demand, FedEx said.