FedEx Rate Increases Show Signs of Pressure on Parcel Carriers

As vaccines take hold and the stage is set for a summer of increased economic activity, some sectors are preparing for a return to normal. While the potential for a post-pandemic recovery looks goods, certain signals point to the lingering impact of consumers staying home.

FedEx rate increases - and rising shipping costs at several points of the supply chain - show that not everything can immediately return to the way things were.

The Impact of Surging eCommerce and Rising Prices

The overall small parcel market is still suffering from a lack of capacity. Catalyzed by a yearlong reliance on eCommerce channels and the corresponding surge in B2C shipments, parcel carriers have increased their workforces and added additional resources to better manage continued high volumes.

The situation across the broader global shipping market is a similar story, with space constraints evident and container rates soaring. According to Bloomberg, rates for a 40-ft container are coming in up to 50% higher than at the start of 2020, with business owners facing the tough choice of whether to absorb the additional cost or pass it on to customers in the form of higher retail prices for their products. In another key area, you may have noted the price of lumber rising, which impacts everyone from the homebuyers to the simple wooden pallets that keep cargo moving.

As price hikes like this combine with high utilization of US warehouse space, InsightQuotes highlights an average yearly increase of 5.6% in warehousing costs for 2021, compared to 3.3% in 2020.

In turn, this means higher shipping and operating costs for both carriers and shippers, resulting in carrier “peak surcharges” and other additional fees to help cover their rising expenses.

Until more consumers return to some sort of normalcy and, most importantly, feel comfortable enough to head back to stores to pick up their purchases, the parcel marketplace will continue to face an environment that is more favorable to carriers.

FedEx Rate Increases Prompt Shipping Reviews

Back with the US parcel carriers, the increase of shipping rates by FedEx is causing many brands to review their options.

The increases apply to Ground Economy shipments, formerly called FedEx SmartPost, and go into effect mid-June 2021. The rise is material and significantly impacts 3PL operating costs, hence the recommendation to take a step back, assess other shipping options, and work with service partners to manage rising costs accordingly.

Vetting alternatives such as regional carriers like OnTrac and Lasership is a good place to start. Expanding relationships with other major parcel services like UPS, DHL eCommerce, UPS Mail Innovations, and USPS provides another route to ensure you get the best bang for your buck.

3PL partners with established connections to these carriers can help identify the most cost-effective shipment methods for your business. A good partner can also highlight related areas for cost reduction, such as order processing adjustment or changes to packaging materials.

While FedEx rate increases demand attention, they are also a sign of the times and provide an opportunity to revisit your shipping/transportation solutions. If you have concerns, don't hesitate to contact us.