FedEx Jumps the Shark

On September 22, FedEx announced its 2023 General Rate Increase, the highest in FedEx history. And, as usual, the devil is in the details. First, let's look at how the numbers shake out.

Big Increases for Biggest Weights & Highest Zones

The biggest increases in Ground / Home Delivery will be in the highest weights and the highest zones. But FedEx did manage to squeeze in the largest increase below 25 lbs. where it would make the biggest difference; on zone 2, 1 lb. rate. As you may be aware, this is the rate used as the peg for the Ground Minimum Package Charge. Along with the minimum, the higher zones are the big story on Ground, with all but two (zones 6 & 7 @ 23 lbs.) weight/zone combinations in the Continental US coming in at increases between 7.3% and 8.5%.

2023 Priority & Standard Overnight Increases

The 2023 Priority & Standard Overnight increases will be treated very similarly. Not only do both minimum package charges go up by 8.5%, but the heaviest rate increases come in the lower zones and below 50 lbs.

This is unsurprising; most overnight shipments are below 50 lbs. So, increasing the lower weights to a greater extent allows FedEx to increase yields while publishing a (somewhat) more reasonable average increase.

A look at 2-Day Rate Increases

2-Day rates are going to increase very differently from the overnight services. While the minimum is still increasing more than the announced average increase (7.5%), the heaviest increases are applied fairly evenly, except in zone 5. Every weight zone combination in the Continental US except zone 5 will increase by 7.3% to 7.5%. While every cell in zone 5 increases by 8.8% to 8.9%. I'm not sure what zone 5 did to FedEx, but it seems FedEx is out for blood.

3-Day Shipping By Zone & Weight

In the case of 3-Day, the table doesn't tell the tale. The table at the left makes the increases look more nuanced than they are. Below 100 lbs. FedEx is simply increasing zone 2-4 rates by 7.5% and zone 5-8 rates by 11.9%. Above 100 lbs. there's a little more variation, but not much. True to form. However, FedEx still gets the 7.5% increase on the minimum package charge.

Look Deeper than the "Announced GRI"

Looking at these increases, it's hard to see where FedEx gets their announced 6.9% increase. Well, again, it's all in the details. The announced GRI is the average increase across services, weights, and across zones. Some infrequently used services like First Overnight will take below-average increases. Some low-volume rates, such as Ground packages from Hawaii (zone 92), will decrease. The announced averages do not reflect where the volumes are. Each cell is counted in the average on an equal weighting.

How About FedEx Surcharge Increases?

So, what about FedEx surcharges? Remember, surcharges aren't counted in the announced GRI increase. And there's good reason for that . . .

Other Surcharges to Note

While the lists above do not capture every surcharge, they reflect those most commonly impacting shippers' costs. You'll notice that all but three surcharges exceed the announced GRI, and the majority exceed current CPI estimates. Oversize / Large Package and Oversize surcharges will be especially hard, taking double-digit increases and greater than 20% increases in a couple of cases. Surprisingly Delivery Area / Extended Area and Residential surcharges receive lighter increases on average, though still near, at, or above CPI estimates.

A look at the FedEx Earnings Report

In mid-September, FedEx announced a miss on profitability for the quarter just ended and even went so far as to pull its full-year earnings guidance. If we look deeper into the announcement, though, FedEx's costs were off to a much greater degree than their revenue. While CEO Raj Subramaniam did speak to softening package volumes, we expect YoY market volumes to soften further as we head into peak season. This means that as FedEx fights its cost issue, they may also face challenges on the revenue front. It's hard to say if FedEx can combat a cost issue with price increases. But the real question shippers should ask is, will UPS follow FedEx with their 2023 GRI? We have some thoughts on that, but we'll save them for another time. To navigate the shipping market, contact Intelligent Audit to help make you a smarter shipper.