FedEx and UPS rate hikes make online shopping more expensive

Shipping rates are rising faster than they’ve been in nearly a decade, putting more pressure on traders to raise prices or find other ways to offset higher costs. .

FedEx Corp. said on Monday that shipping rates would rise an average of 5.9% next year across most of its services, the first time in eight years that it or its rival United Parcel Service Inc. has surpassed annual increases of 4.9%.

UPS is expected to release its rate increase for 2022 in the coming weeks. Both carriers have kept pace with their annual price increases since at least 2010, according to Transportation Insight LLC, a supply chain and logistics management company.

The dropping of a 4.9% annual increase shows how the pricing power has shifted to carriers like FedEx, UPS and the U.S. Postal Service, which have seen demand for their shipping capacity and home delivery skyrocket during the pandemic. The higher than normal rate hike is also a sign that inflation is spilling over the entire global supply chain.

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“The carriers are incredibly optimistic and confident that they hold all the cards and have the leverage to squeeze more margin from their customers than ever before,” said Trevor Outman, Co-Managing Director of Shipware LLC , a shipping consulting company. .

FedEx and UPS had hinted to shippers that the annual rate increase would be higher than before. Previously, some shippers negotiated clauses in contracts according to which their annual rate increase would be around 2.5% to 3%, or half of public rates. In recent weeks, some large shippers have received contract renewals that would cap their annual increase at 5%, according to shipping consultants.

FedEx’s new rates go into effect on January 3. They will increase on average by 5.9% for FedEx Express shipments to the United States and on FedEx’s ground and door-to-door delivery service, which leans more towards e-commerce shipments.

FedEx said the higher rates are due to the “difficult operating environment” and will allow the company to continue investing in its network, including improving service, maintaining its fleet and technological innovations.

Online sellers have already had to deal with price increases during the pandemic. Shortly after the lockdowns began last year, FedEx and UPS approached several large shippers with new contracts that imposed double-digit cost increases through a combination of higher rates and smaller cuts. With limited capacity at all carriers, some have either accepted the new conditions or tried to transfer their business to other carriers.

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FedEx and UPS have also added a slew of surcharges and other higher fees for items such as large packages throughout the pandemic, which has further increased shipping costs.

These include big surcharges during the holiday season, when some shippers could be hit with charges ranging from $ 1.15 to $ 6.15 per package if their weekly shipping levels are a certain multiple higher than they were not before the pandemic. As recently as 2017, UPS vacation surcharges were only 27 cents on ground packages and rose to 97 cents for some air shipments.

FedEx also announced Monday that it will increase the fuel surcharge it applies to all shipments from November 1. equipment, which increases its total fuel consumption.

This follows a recent adjustment by UPS to its fuel surcharges which increased costs for many shippers.

With the higher rates come new priorities among the major carriers. UPS chief executive Carol Tomé is using the “better, not bigger” mantra across the shipping giant to focus on more profitable shipments instead of shipping more packages. In doing so, large shippers who have historically achieved larger shipping discounts see their rates rise, and UPS fills its network with more small and medium-sized shippers who have higher profit margins.

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FedEx, meanwhile, is moving more toward e-commerce parcel shipping, even after severing ties with Amazon.com Inc. before the pandemic. It plans to spend $ 7.2 billion in capital spending to build the capacity to handle the extra volume.

The combination of increased parcel rates, along with pressure on labor costs and other supply chain inflations, could lead to retailers of all sizes who have relied on online sales for growth to re-evaluate some of their long-standing offerings, according to shipping consultants. Free shipping may disappear or the threshold for avoiding shipping costs may increase. Online and in-store costs could diverge. Some merchants may choose to sell certain large items only in-store.

“Something has to change,” said Hannah Testani, CEO of Intelligent Audit, a freight audit and analysis company. “It is not possible for anyone to have the profitability built in to withstand these cost increases.”

Some shippers institute charges to offset rising costs. Online sporting goods retailer Fanatics Inc. recently added a handling charge of $ 1.99 to help cover some of the storage and packaging costs. A Fanatics spokesperson declined to comment.

However, online sellers may find it difficult to ditch free shipping, especially as Amazon continues to give voice to what buyers want.

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“It’s a real dilemma,” said John Haber, president of package consulting at Transportation Insight, “because you have to compete with Amazon and Amazon isn’t going to stop offering free shipping.”

Senders can transfer some packages to the US Postal Service, which this year already installed 61 of the 112 new machines planned to sort packages and improve service from last year.

Another strategy is to use more regional carriers like Lasership Inc., Lone Star Overnight Inc. and OnTrac. Since none of these have national coverage, their use could include opening a distribution center closer to their area or truck packages from retailers in states where regional carriers operate.