November 5, 2018

FedEx is hiking rates again

FedEx rates are going up again.

The Memphis-based company announced it would raise rates by an average of 4.9% as of January 7, 2019. That matches the increase that FedEx put in place at the start of 2018.

FedEx rival UPS has yet to announce its rate increase for 2019. But the US Postal Service has proposed increasing its rates for Priority Mail boxes by an average of 5.9%. The Postal Service wants the rate hikes to take effect in January, but the government hasn't yet ruled on the proposal.

Costs are rising because of higher fuel prices. FedEx reported that in the quarter ending in August, its fuel costs were 40% higher than a year earlier, and labor costs were up 11%. The increased price of jet fuel alone increased its costs by more than $200 million in the quarter.

But FedEx has been able to capture some of those increased fuel costs through a separate fuel surcharge it has in place for some shippers.

A shortage of truck drivers has driven up labor costs as well. FedEx and its competitors are struggling to kep up with increased demand for their services.

The growth in online shopping has hiked shipping volumes for FedEx, UPS and the Postal Service. FedEx has said it expects the four Mondays during the upcoming holiday shopping season will be the four busiest days in the company's history.

At the same time, companies such as FedEx and UPS are facing increased competition from Amazon (AMZN) itself, which is starting its own delivery service using contract workers to handle package deliveries.

Shares of FedEx (FDX) which are down about 10% for the year, were higher Monday morning following the rate announcement. UPS (UPS) shares, which have also been lower this year, rose on the news.

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