FedEx Announces 2015 General Rate Increase
FedEx Express will increase shipping rates by an average of 4.9 percent for U.S. domestic, U.S. export and U.S. import services. FedEx Ground and FedEx Home Delivery will increase shipping rates by an average of 4.9 percent. In addition, FedEx Ground will also begin applying dimensional weight pricing to all shipments. FedEx Freight will increase shipping rates by an average of 4.9 percent. This rate change applies to eligible FedEx Freight shipments within the U.S. (including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands), between the contiguous U.S. and Canada, within Canada, between the contiguous U.S. and Mexico, and within Mexico.
It's noteworthy that at 4.9 percent, FedEx Express is taking a higher average increase than each of the past five years, in which the average net increase was 3.9 percent. Clearly, FedEx intends to improve its operating margin for its express segment. Although up from 4.1 percent the previous year, the Q1 FY15 operating margin of 5.4 percent trails FedEx's operating segments (Q1 FY15 Ground operating margin was 18.4 percent, and FedEx Freight reported 10.4 percent margins).
However, taking an average rate increase is misleading. Approximately 93 percent of FedEx Express packages weigh less than 50 pounds, and those packages will incur significantly higher increases than the stated "average" of 4.9 percent. Shipware has prepared the table below to demonstrate the impact of the actual rate increase for FedEx Express products.
Similarly, the actual rate hike for ground shipments depends on its weight range. Rates for lightweight packages will increase much more significantly than heavier packages. The bad news for ground shippers is that the majority ship lightweight packages, especially B-to-C shippers. See the table below:
In addition, the 2015 ground minimum charge will be $6.61 (up 5.9 percent from $6.24). Taken in combination with the 2015 changes to price all Ground packages by dimensional weight, the 2015 general rate increase (GRI) is very significant.
This is the first time FedEx has announced its Ground increase prior to UPS. In the past, UPS would set the Ground increase and FedEx would quickly match it. The industry now turns its attention to UPS in anticipation of its 2015 GRI announcement in the coming weeks. Does UPS match the FedEx rate increases, or will it change pricing to compete with new, sharply discounted USPS Priority Mail pricing?
It's also noteworthy that FedEx Freight (LTL), which historically has taken its rate increase in April, will implement its rate increase in January to coincide with the rest of the FedEx product portfolio. Of course, exercising the increase three months earlier lends tremendous financial benefit to FedEx by shifting millions of dollars away from shippers earlier in the year.
Accessorial charges are also increasing (partial list): Additional Handling Service (5.9 precent), Address Correction (4 percent), Advancement Fee (7.7 percent), Declared Value (5.5 percent), Delivery Area Surcharges (4.1 percent to 14.3 percent), COD (4 percent), Delivery Signature Options (6.6 percent to 16.6 percent), Oversize Charge (4.5 percent), Residential Delivery Charge (4.5 percent to 6.9 percent).
Shippers interested in determining the exact impact of these rate increases for their unique distribution should contact me at email@example.com.
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.