Just as we escape the looming fear of toilet paper shortages (thanks, COVID!) and mail totes full of delayed packages, we are seeing yet another ripple effect from the pandemic. Major shipping companies are taking a big hit as fuel prices rise and the cost of goods inflates. As FedEx passes the rising costs along to businesses, we are forced to buy into the surcharges in order to keep our shipping operations running. The FedEx rate increase is steep, but fear not. There is one way to offset the increased rate.
The FedEx Rate Increase Explained
On January 2nd, 2023, FedEx plans to implement several surcharges, fees, and other price increases. If put into effect, this would be a record-high rate increase. In the past, rate increases were typically between 4-6%, whereas next year we will see prices go up, potentially, by more than 16%. In the past, FedEx has offered a lower fuel surcharge. However, it appears this will be the case with next year’s rate change.
Planned increases for 2023 range from between 6.9% for FedEx Freight Priority and Economy services and 7.9% for FedEx Freight 1000-501 base rate shippers. There are additional shipping surcharges and fees, including a late payment fee of 8% for US FedEx Express and Ground invoices not paid according to pre-approved payment terms. The rate increases won’t just impact businesses. FedEx’s Home Delivery Residential surcharge will increase by over 8%, and Delivery Area Surcharges will increase by over 10%.
The reasons for these rate increases are not fully understood. Oil prices have skyrocketed nationwide and this would certainly have an impact on any ground delivery company. Officially, FedEx has stated that these record-high increases in price are appropriate considering the pressures on the company’s cost due to inflation. FedEx had a challenging last quarter with a drop in net income of 21% YoY. The company expects to save up to $2.7 billion in costs during 2023, thanks in part to these proposed fee increases.
Surcharges Cause Inflation
Shipping surcharges are increasing at different rates based on a variety of factors. These factors include delivery area, package size, and weight. The specifications are listed below, and more specific details can be found on FedEx’s website.
Delivery area surcharges are applied to all areas considered remote by FedEx standards. Remote delivery rates are increasing to $13.25. Other delivery fee increases are based on zip code, impacting almost 4,000 regions nationwide. You can search for your zip code to view rate increases on the FedEx website here. The delivery fee is consistent for both commercial and residential shipments.
- Packages: Additional delivery surcharges are applied based on package size. FedEx One Rate envelopes measuring over two inches on the shortest side and Rate Paks measuring over five inches on the shortest side will both incur an additional fee. Luckily, the rate increases for package weights are consistent this year compared to last year’s significant increase.
- Mail Totes: Plastic mail totes are a potentially reusable option for shipping goods and FedEx will not turn away anyone using these products for packaging. However, customers should be aware that FedEx charges based on dimensional weight for some containers, including plastic mail totes, meaning they will charge based on the space the tote takes up on the delivery truck. Make sure to take this into consideration and use the space within the tote as efficiently as possible.
Another service experiencing a hike in surcharges is the delivery of non-conveyable freight items. Any package that does not fit on a conveyer-belt would be considered ‘non-conveyable freight’. Packages requiring additional handling can incur an increased surcharge fee of, on average, 16.5%.
Who Is Impacted by FedEx Rate Increases
While FedEx surcharge increases seem excessive, not all individuals and businesses will be seriously impacted by the increased 2023 rates. The new rates will mostly impact shippers who meet the following criteria:
- Package Size: Shippers who frequently send large or heavy packages will be significantly impacted.
- Shipment Zones: Customers who send packages to remote regions or other impacted shipment zones will be heavily affected by rate changes.
- Returns and Late Fees: Shippers who frequently incur return and late fees will face higher costs.
- Residential Shipping: Individual, non-business customers sending small shipments to residential addresses will notice an increase in shipping costs.
The Silver Lining
There is a silver lining. Not all delivery options will incur higher fees, and there may be ways for businesses to offset prices such that rate increases have minimal impact on their customers.. As of yet, FedEx has opted not to increase delivery and return fees for ground economy shipping. Lighter and more sustainable packaging increases are predicted to remain consistent, far less than last year, and may be less expensive overall. The cheapest way to ship in 2023 will be by using small, light, and easy-to-handle packages that travel short distances to non-residential addresses.
Sustainable (And Reusable) Packaging
FedEx is pushing sustainable packaging processes in response to the COP26 climate summit. All FedEx branded envelopes are carbon neutral and made of 100% recycled paperboard. FedEx is promoting sustainable packaging use by investing in climate degradation offsets for every sustainable envelope shipment at no cost to the customer.
FedEx has stated that they want their customers ‘to ship more efficiently and use the least packaging possible.’ For this reason, they price dimensionally based on volume. The smaller the packaging, the more packages per vehicle and thus, the less fuel used. Customers can use light, sustainable packaging to offset the increased surcharges and fees coming in 2023.
Rates Are Not Set in Stone
Keep in mind these are announcements of future changes. They are not yet set in stone and the impact on shippers may not be as steep as predicted. In some past years, the actual increase has been less than previously announced.
Another way organizations can protect their bottom line from increased rates in 2023 is to negotiate their shipping contract. While FedEx has the upper hand in negotiations, all aspects of the contract can be negotiated. It certainly can’t hurt to try! Be sure to do your due diligence and be prepared with a plan and appropriate pitch to increase your chances of success.