FedEx follows lead of UPS, announces 2017 rate increases

When one domino falls, another is sure to follow. That could be an apt way of describing recent rate hike announcements by the express delivery and parcel shipping duopoly of UPS and FedEx.

UPS struck first in early September, announcing rate hikes that will take effect in the coming weeks and months, including: UPS U.S. Ground service will increase by an average net 4.9%, effective December 26, 2016; daily rates for UPS U.S. Air and International services will increase an average net 4.9%; UPS Air Freight rates within and between the U.S., Canada and Puerto Rico, will increase an average net 4.9%, also effective December 26, 2016; and UPS Freight announced an average net 4.9% general rate increase effective September 19, 2016. UPS also noted that the additional handling surcharge will apply to any package with the longest side exceeding 48 inches, instead of 60 inches for all Air and International packages, with the additional handling charge increasing by $0.35. And it also said that effective January 8, 2017, the additional handling surcharge will also apply to UPS SurePost packages.

This week, FedEx followed suite and announced its respective rate increases, which will take effect on January 2, 2017, including:

• FedEx Express rates increasing by an average of 3.9% for U.S. domestic, U.S. export, and U.S. import services;
• FedEx Ground and FedEx Home Delivery rates increasing by an average of 4.9%, with FedEx SmartPost rates also changing;
• the FedEx Express and FedEx Ground U.S. domestic dimensional weight advisor will change from 166 to 139;
• FedEx Freight rates will increase by an average of 4.9%; and
• the FedEx Freight extreme length surcharge will change from $88 to $150 and be applied to shipments 12 feet or greater compared to the prior 15 feet 

Perhaps the most significant change announced by FedEx is that fuel surcharges for FedEx Express and FedEx Ground will be adjusted on a weekly basis instead of the current process in which adjustments are made on a monthly basis with a two-month lag between U.S. government published fuel indexes and the fuel surcharges. FedEx said that adjusting the weekly fuel surcharges will reduce lag time from two months to two weeks, providing a closer alignment between fuel costs and fuel surcharges at the time of shipment.

Rob Martinez, president & CEO, Shipware Systems Corp, a San Diego-based parcel consultancy, labeled said that the adjustment in the dimensional weight calculation is the most “striking” change rolled out by FedEx. 

“Prior to 2011, the dimensional advisor was 194. Today, it is 166, and effective January 2, 2017, it will be reduced to 139, which is the current divisor for International Export and Import shipments,” he said. “The shift for many shippers is cataclysmic. It is paralyzing to many shippers not under custom contract DIMs. ” 

Martinez also noted that with this announcement FedEx did not match UPS’s rate increase, with FedEx taking a 3.9% increase on Express and International Export and Import products compared a 4.9% average for UPS, and the FedEx Ground minimum charge at $7.25 compared to UPS’s $7.32, along with the companies set to have totally different published rates for the first time in years.

In addressing the FedEx rate changes, Jerry Hempstead, principal of Hempstead Consulting, explained that the fuel surcharge change will be difficult for shippers to manage and audit, noting that it may serve as a sign that FedEx anticipates fuel rising in the next year, possibly soon after Election Day, and that by going to a weekly adjustment they can capture incremental revenue sooner.

Like Martinez, Hempstead said the change in the dimensional weight advisor is a real pain point for shippers.   

“First shipments that are presently charged dimensional weight for a transaction will be charged more,” he said. “And now a lot of shipments that were not previously charged dimensional weight based on the 166 divisor will now ‘enjoy’ being charged for a greater dimensional weight if the dim weight is greater than the actual. There appears to be no end to the creative ways the carriers employ to increase revenue. The cost to ship a package will have gone up on average more than 25% in the last four years between the tariff increase, the accessorial increases and the rule changes. Can you think of the cost of anything else that has gone up that much, and in the face of declining fuel prices? But when the marketplace has to procure from a duopoly this happens, much to the pressure on shippers’ bottom lines.”