FedEx is introducing, but not widely advertising, a series of new charges and fees over the next two weeks that could catch customers by surprise, building on a recent pricing strategy aimed at boosting revenue without touching base rates that shippers tend to focus on.
Over an 18-month span, FedEx (NASDAQ: FDX) has implemented or announced more than 50 pricing changes, according to parcel spend management firm LJM. On top of three general rate increases have been fuel surcharge adjustments, five changes to One Rate (a flat-rate, upfront shipping program designed to provide simplicity and predictability), delivery area surcharge updates, customs-related fees, dimensional pricing changes, peak surcharges and demand surcharges.
The surcharges are typically less visible to freight owners than base rates and can have a large impact on transportation budgets.
Shippers have experienced a significant increase in fuel surcharges from FedEx, UPS and even the U.S. Postal Service as the Iran war limited crude oil supplies, pushing up the cost of diesel and jet fuel used to power their fleets, as the TD Cowen/AFS Logistics Freight Index quantified last week. Fuel surcharges in the second quarter were two-thirds higher than the prior year. Overall, the express parcel rate per package increased 5.9% in the second quarter, while the ground parcel rate per package grew 5.2%.
“The biggest takeaway is not just that FedEx is raising rates on a continual basis, but how those increases have been distributed. Many shippers now see accessorial charges in the high-30% to low-40% range as a share of spend, with some exceeding 50%, LJM said in an article on its website. The constant micro-adjustments mean businesses should review their contracts more than once a year, it added.
On Monday, FedEx reclassified its zip code list for delivery and pickup area surcharges, pushing some zip codes into pricier tiers and making other zip codes surcharge-eligible for the first time. The result is that 102 zip codes were added to the standard delivery area surcharge tier, 74 moved from standard to extended area and 63 moved from extended to remote area — the highest cost tier. Shippers with packages destined to or picked up from any of the reclassified zip codes are now subject to higher per-package surcharge costs.
For delivery area surcharges, the move from extended to remote represents an increase of $11.20 per package for commercial shipments and $7.95 per package for residential shipments. Lower tiers received more modest increases. For pickup area surcharges, the extended-to-remote promotion adds $7.20 per stop.
Shippers should quickly check the surcharge tier shifts and renegotiate their contracts before they renew and lock in the higher rates, said Anthony Robinson, CEO of ShipScience on LinkedIn.
Meanwhile, on Aug. 3, FedEx will extend its U.S. inbound processing fee to shipments destined to all 27 nations in the European Union from outside the bloc, according to the latest rate list. The fee is in response to the EU ending duty-free status this month for goods valued at 150 euros, or less, and applying a 3 euro charge, equivalent to about $3.40, for each type of product in a shipment. The EU rule change is designed to slow the onslaught of cheap e-commerce imports from China, which regulators say are not paying their fair share in duties and undermine domestic sellers.
The inbound processing fee is a flat, per-shipment fee FedEx charges to cover the administrative work of customers clearance, on top of mandatory government import charges.
Because it’s charged per shipment rather than as a percentage of value, the processing fee behaves very differently across shippers. A company sending a small number of high-value B2B shipments will barely feel the impact, but high-volume shippers of individual parcels will face a large bill, experts say.
FedEx on Monday also raised its disbursement fee, a charge for advancing duties and taxes on a customer’s behalf from the greater of $15 or 2% of duty, tax and merchandise processing charges to the greater of $17.50 or 2.5%. For importers navigating a volatile tariff environment, that’s a higher percentage applied to a base that’s already rising, noted ICC Logistics services in a blog post.
The rise in surcharges has contributed to shippers switching more volume to alternative parcel carriers that offer lower-cost service. FedEx has made clear that it is willing to relinquish market share in the low-margin B2C local deliveries for online retailers to focus on premium B2B services where it can make a profit. Operating in the last-mile delivery space doesn’t generate enough revenue to adequately cover the cost of operating an expensive global network and management has said retailers must pay for the true value of its infrastructure and services.
Surcharges are a major part of FedEx’s revenue strategy, said Chief Commercial Officer Brie Carare said during an investor event in February.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
Write to Eric Kulisch at ekulisch@freightwaves.com.
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