FedEx Express, FedEx Ground and FedEx Freight will increase shipping rates effective January 5, 2015.

FedEx Express will increase shipping rates by an average of 4.9% for U.S. domestic, U.S. export and U.S. import services. FedEx Ground and FedEx Home Delivery will increase shipping rates by an average of 4.9%. In addition, FedEx Ground will also begin applying dimensional weight pricing to all shipments. FedEx Freight will increase shipping rates by an average of 4.9%. This rate change applies to eligible FedEx Freight shipments within the U.S. (including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands), between the contiguous U.S. and Canada, within Canada, between the contiguous U.S. and Mexico, and within Mexico.

It’s noteworthy that at 4.9%, FedEx Express is taking a higher average increase than each of the past 5 years in which the net increase has been 3.9%. Clearly, FedEx intends to improve its operating margin for the Express segment. Although up from 4.1% the previous year, the Q1 FY15 operating margin of 5.4% trails the operating segments of FedEx (Q1 FY15 Ground operating margin was 18.4%, and FedEx Freight reported 10.4% margins).

However, taking an average rate increase is misleading. Approximately 93% of FedEx Express packages weigh less than 50 pounds, and those packages will incur significantly higher increases than the stated “average” of 4.9%. Shipware has prepared the table below to demonstrate the impact of the actual rate increase for FedEx Express products.

Similarly, the actual rate hike for Ground shipments depends on its weight range. Rates for lightweight packages will increase much more significantly than heavier packages. The bad news for Ground shippers is that the majority ship lightweight packages, especially B2C shippers. See table below:

In addition, the 2015 Ground Minimum Charge will be $6.61 (up 5.9% from $6.24). Taken in combination with the 2015 changes to price all Ground packages by dimensional weight, the 2015 General Rate Increase is very significant.

This is the first time FedEx has announced its Ground increase prior to UPS. In the past, UPS would set the Ground increase and FedEx would quickly match it. The industry now turns its attention to UPS in anticipation of its 2015 GRI announcement in the coming weeks. Does UPS match the FedEx rate increases, or will it change pricing to compete with new, sharply discounted USPS Priority Mail pricing?

It is also noteworthy that FedEx Freight (LTL), which historically has taken its rate increase in April, will implement its rate increase in January to coincide with the rest of the FedEx product portfolio. Of course, exercising the increase three months earlier lends tremendous financial benefit to FedEx by shifting millions of dollars away from shippers earlier in the year.

Accessorial charges are also increasing (partial list): Additional Handling Service (5.9%), Address Correction (4%), Advancement Fee (7.7%), Declared Value (5.5%), Delivery Area Surcharges (4.1% to 14.3%), COD (4%), Delivery Signature Options (6.6% to 16.6%), Oversize Charge (4.5%), Residential Delivery Charge (4.5% to 6.9%).

Shippers interested in determining the exact impact of these rate increases for their unique distribution should contact me at [email protected].