FedEx keeps rate, surcharge increases relatively modest for ’24

The dust has settled on FedEx Corp.’s and UPS Inc.’s headline tariff rate increases for 2024. Both carriers have clocked in with 5.9% general rate increases (GRIs), 100 basis points below the record 6.9% increases for 2023.

As always, though, the real action is going on under the hood. The carriers will go to market with an array of rate increases and delivery surcharges that vary depending on the specific service, distance, weight and other factors. Those are the numbers that shippers and their parcel consultant partners will be watching, and that they will bargain from, as contracts get negotiated or renegotiated. Almost all parcel-delivery services are based on contracts rather than one-off or occasional services where a tariff rate might apply.

UPS (NYSE: UPS), which announced its 2024 GRI Thursday night, has yet to publish its rate schedule for next year. FedEx, which generally acts before its rival, went out with its GRI on Aug. 29 and published its rate and surcharge details Thursday.

One unusual move is that FedEx (NYSE: FDX) will hike its ground-delivery minimum charge by 5.9% to $10.70, matching its GRI increase. Hikes in ground minimums, which have been on a steady rise for years, typically exceed the pace of GRI increases, according to Paul Yaussy, senior professional services consultant for Shipware LLC, a consultancy. Next year will be different, however.

FedEx will impose a 7.9% increase to its minimum charge for next-business-morning deliveries known as Priority Overnight. This brings the levy to $39.96, according to data from TransImpact LLC, a consultancy. Second-day delivery minimums will rise to $23.83, a 5.5% increase, according to the consultancy.

FedEx’s ground rates will vary depending on package weight. Rate increases will be below the headline GRI for parcels weighing up to 10 pounds, according to data from AFS Logistics Inc., a non-asset-based provider that negotiates, audits and pays about $4 billion in annual parcel expenditures. From there, rate increases will exceed 6%, peaking at 6.71% for parcels weighing between 51 and 70 pounds.

FedEx will hike rates, on average, by 6.19% across all weight breaks, which includes parcels over 70 pounds, according to AFS.

On its primary surcharges, FedEx is keeping increases in the single digits. This may be a response to the blah demand environment and shipper resistance to double-digit surcharge increases that have been the norm in recent years.

It may also be a way to pressure UPS, which must manage through very high labor cost increases during the first year of a five-year contract with the Teamsters union, while winning back business diverted to rivals during the weeks and months leading up to the contract’s Aug. 22 ratification. Yaussy said that UPS’ rates and surcharges will come close to matching FedEx’s, although the labor cost pressures may compel UPS to impose higher surcharges and hope its shippers won’t notice.

Residential delivery surcharges on FedEx’s Home Delivery product will be capped at 7.7%, while surcharges on deliveries made by FedEx Express will be held to 6%, according to TransImpact.

Delivery area surcharge increases will range between 5.4% and 8.9%, depending on whether a package is shipped via air or ground, as well as the distance the package has to travel. The longer the trip and the longer the package is in the FedEx system, the higher the surcharge will be.

Outlier surcharges, such as for additional handling services, will jump substantially, reflecting FedEx’s higher costs to process shipments requiring special services, as well as its desire not to handle them at all because the shipments might not move optimally through an automated operation. For a shipment whose actual weight is more than 50 pounds and requires special handling, the surcharge will jump 19% to 26.1% depending on the distance traveled, according to Shipware data. For shipments whose dimensions exceed FedEx’s handling requirements, surcharges will increase by 18.9% to 27.7%. For shipments whose packaging doesn’t comport with FedEx requirements, the levies will increase by 18.2% to 22%.

FedEx will also impose punishing surcharges on super-large shipments that exceed the dimensional limits covered under the additional-handling charges. Those levies will increase in a range of 18.5% to 24.2%, depending on the delivery distance and whether the package is destined for a residential or commercial address.

The pace of surcharge increases may have moderated from recent years when the pandemic fueled off-the-chart leaps in delivery demand. Still, they are well above current inflation rates, meaning they are ripe for being beaten back by shippers already operating in a slower demand climate.

“In the current market, all shippers should be negotiating these charges down. Because the rates go up at such a high rate, even higher than the rate of inflation, every year, the carriers are practically inviting a negotiation of the rates,” said Yaussy.

Yaussy advised shippers to begin negotiating before the new rates take effect as long as it’s been at least a year since the prior negotiation and there are no contractual terms prohibiting a reopening of the contract.

FedEx’s 2024 rate and surcharge changes take effect Jan. 1. UPS’ take effect Dec. 26.

Jey Yokeley, vice president, parcel sales at TransImpact, said that shippers who send significant volumes and have long-standing relationships with their carriers are in an advantageous negotiating position. “A high-volume shipper is more valuable to a carrier in the current environment. Unlike the last couple of years when national carriers limited their commitment to large-scale shippers, the current environment has created an enhanced focus on protecting higher volume clients by the carriers to maintain volume thresholds and increase density within their networks,” he said.

Shippers who can demonstrate a willingness or ability to switch to alternative carriers can sometimes use this as a negotiating point, particularly in the current market where carriers are hyper-focused on converting new business opportunities and are willing to pay for it, Yokeley saId.

Most shippers have contracts allowing for unrestricted reviews or renegotiations, Yokeley said. “Just as the carriers possess the ability to implement annual rate hikes and seasonal surcharges at their discretion, shippers equally withhold the power to renegotiate and reduce their costs on a regular cadence,” he said.

The post FedEx keeps rate, surcharge increases relatively modest for ’24 appeared first on FreightWaves.

Source: freightwaves - FedEx keeps rate, surcharge increases relatively modest for ’24
Editor: Mark Solomon