FedEx SmartPost to Raise Rates Again?

UPDATE: The USPS just announced it's delaying the implementation of the pending rate increase (which affects FedEx) due to Postal Regulatory Commission requests for additional information to justify the increases, so it will be interesting to see if FedEx SmartPost proceeds with its increases. It also remains to be seen how FedEx SmartPost will implement the increases. Will it raise published pricing so it's higher than ground for the first time ever, or bake the rate hikes into discounts — i.e., decrease incentives to offset the increase?

It will also be interesting to see how other parcel select carriers respond to FedEx's rate actions. The next largest player is UPS Surepost. Using history as our guide, whenever one of these two carriers announces a rate increase, the other follows with the same announcement. The aggregate sum of all these increases will have a dramatic adverse impact on B-to-C shippers!

ORIGINAL POST: While FedEx SmartPost hasn't made any public announcements as of this publication, select customers have received written notifications of a price change effective April 27, 2015. Early indications are that FedEx intends to increase SmartPost rates by 8.3 percent.

This news comes on the heels of the average 4.9 percent increase on the FedEx deferred ground product that took effect Jan. 4, 2015. However, it should be noted that lightweight packages — one pound to 10 pounds, which represent 95 percent of FedEx SmartPost packages — took an increase of 6.2 percent, which of course is much higher than the "average" (see Chart 1 below).

The Postal Service filed a rate change with the Postal Regulatory Commission on Jan. 26, 2015. Rate increases for Parcel Select, the Postal Service's bulk ground shipping product, will increase an average of 7.3 percent for destination-entered parcels. However, lighter weight packages will increase more than the average (see Chart 2 below). Today, approximately 98 percent of FedEx SmartPost packages are destination entered.

However, since the negotiated services agreement (NSA) between the USPS and FedEx SmartPost isn't public, none of us have visibility to FedEx SmartPost's actual pending increase. My strong suspicion is that the contract includes preferential terms, and that FedEx SmartPost receives a lesser rate increase than those shown above in chart two. The other possibility is a potentially delayed implementation of the rate increases.

So, is another FedEx rate increase of 8.3 percent in April — on the heels of a 6.2 percent increase in January for SmartPost packages up to 10 pounds — justified?

Well, let's add the Postal Service's actual dollar increases pending to current SmartPost pricing (Chart 3 below).

An 8.3 percent increase is NOT justified, not by a longshot because the base rates for SmartPost are so much higher than the baseline rates for Parcel Select services for destination delivery unit (DDU) entry. Obviously, applying the same percentage increase to a much higher number (FedEx SmartPost) results in a significantly higher rate increase for shippers than the actual increases incurred by FedEx. Shippers are wise to keep this in mind when negotiating SmartPost increases.