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.
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Midwest Teamster
The notion that FedEx is holding most rates down to pressure UPS is nonsense. They have no choice but to try and compete with UPS in those areas and just abandon the longer distance and oversize/overweight segment.
Even before UPS implemented the automation that is now fully operational throughout the network, we made money on “irregular” parcels. FedEx is raising rates that high as a way of simply abandoning a segment they can’t compete in. Same goes for the distance surcharges. Their network simply is not dense enough to compete with UPS in that area.
The reality is that the extra volume in these areas alone will pay for the wage increases, and in the high density space it’s simply going to be best sales team wins. These moves by FedEx are going to be extremely favorable to UPS.