FedEx Hikes Rates for 2018: What It Means for Your Business

Summary

FedEx is giving its shippers the benefit of a few extra months to budget for their cost increases in 2018, pre-empting the roll-out with an early announcement of their general rate increase, effective January 1st, 2018.

The 4.9% stated increase applies across the board to all their tariffs, from Domestic Air to Ground to International shipments. Compared to 2017, when FedEx raised Ground and Home Delivery by 4.9% but Domestic and Int’l Air by 3.9%, 2018 represents a heftier increase.

As seasoned shippers and GRI veterans, you should know that a 4.9% stated increase will often mean higher rate increases in certain areas, as both carriers selectively apply higher percentages to targeted weights, zones, and services.  For Ground and Home Delivery, we can see in the below table that FedEx is using lower increases at the higher weight ranges, less common among shippers, to balance out rate increases up to 5.69% in the low and mid-level weight ranges.

The FedEx Ground Minimum increases from $7.25 in 2017 to $7.58 in 2018, an increase of 4.6%.  Through 2017, UPS has maintained a higher Ground minimum of $7.32, so time will tell whether they will match FedEx’s 2018 minimum rate when they make their rate announcement.  It should be noted, too, that shippers who have the benefit of a minimum net charge reduction will take an even greater proportional hit to their spend increase.

The rate increases are highly varied on Air services, with certain targeted services showing more significant increases. The below table shows the average increase for each Domestic Air service from letters up to 20lbs.  You can see for lighter weight shipments; FedEx 2 Day takes the most dramatic hit.

The next table further breaks down the average increase for 0-20lbs shipments per service across the 8 continental US zones.  The results vary by service, but the general pattern is that the higher zones (5-8) are seeing the higher increases.

Along with tariff increases, FedEx has also increased most of their accessorial fees.  You can see some of the more commonly incurred fees below.  Dovetailing with the strategy of the new peak-season fees of both carriers, some of the highest increases come for Additional Handling and Oversize Fees, as both carriers continue to punish and disincentivize shippers of heavier and bulkier freight.  Residential surcharges for Express shipments also show a disproportionate spike.

Analysis

As we await UPS’s rate announcement, it should be noted that FedEx has moved quickly to wipe out any price advantages it had over its main competitor in 2017—introducing a new third-party fee, reducing its length threshold for Additional Handling from 60 to 48 inches, reducing its Oversize Fee Length threshold from 108 to 96 inches, and introducing the 90lb billed weight requirement for Oversize packages, similar to UPS’s Large Package Fee policies.

It was around this time last year that FedEx rocked the parcel world with the uniform reduction of their dimensional divisors from 166 to 139, which UPS then matched for all their shipments (with the exception of Ground under 1 cubic foot).  As of now, FedEx dimensional divisors are staying at 139, but starting in 2018, the standard 139 divisor will be applicable to SmartPost shipments as well, further increasing the costs of its B2C customers.

For shippers who utilize primarily UPS services, the countdown continues to see how their carrier will match or exceed FedEx’s first move in the 2018 chess game. Based on recent years, it should be expected for UPS to throw a new curveball in the form of an unprecedented change to existing fee requirements or policies.

For FedEx shippers, now is the time to renew and reevaluate your cost mitigation strategies. This rate increase, rather than an isolated development, is merely the latest in a series of new policies—new peak-season fees, increased volatility in fuel surcharge rates—designed to squeeze and disincentivize shippers of residential or bulkier volume.

We all remember the good old days when the carriers each had a single rate and accessorial fee increase at the beginning of each year. Times are changing and so must you.

Victor Zhou is a Senior Analyst for LJM Consultants.  LJM Consultants has been helping shippers improve profitability by reducing shipping costs with expert FedEx & UPS contact negotiating and invoice auditing services, as well as consulting services focused on cost management since 1998.  Please visit our website at www.myLJM.com.  To speak with us and/or for a complimentary analysis of the impact of the 2018 general rate increase, please call (631) 844-9500 or email kenwood@myLJM.com.