FedEx Ground rolls out 2011 rate hikes

FedEx recently announced it will up its rates for its FedEx Ground and FedEx Home Delivery units by an average of 4.9 percent, which will take effect on January 3, 2011.

Company officials said that the full average rate increase of 5.9 percent will be partially offset by adjusting the fuel prices threshold at which the fuel surcharge begins and reduce the fuel surcharge by one percentage point.

This news follows a late September announcement in which FedEx raised rates for FedEx Freight, its less-than-truckload unit, by 6.9 percent (effective November 1, 2010), and FedEx Express for U.S. domestic and U.S. export services by an average of 3.9 percent, effective January 3, 2011.

When these rate hikes were announced, FedEx said it will be implementing a change to the dimensional weight volumetric divisor from 194 to 166 for U.S. domestic services.

In early November, UPS also made similar rate increases, with UPS Ground packages up 4.9 percent and a net increase of 4.9 percent on all air express and U.S. origin international shipments.

And like FedEx UPS made changes to its dimensional weight volumetric divisor, with U.S. Domestic UPS Air Services and U.S. Domestic UPS Ground Services (for packages 3 cubic feet or larger) changing from 194 to 166, among others.

In a recent interview with LM, Jerry Hempstead, principal of Hempstead Consulting, said that these dimensional weight changes will be a major hit to shippers.

“It is all margin improvement for both UPS and FedEx,” he said. “They do no additional work, make no additional capacity investment but get a windfall of incremental revenue on the same shipments they handle today.”

Hempstead these dimensional weight changes are good for shareholders and bad for shippers. He added that he was surprised at how low UPS’s ground increase is, considering that with only two ground parcel national carriers, whatever rate hikes one company announces is matched by the other, with the differences occurring in the discounting.

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