Keeping Up With Inflation: FedEx Announces Biggest Ever General Rate Increase

A FedEx worker unloads packages from a truck in the Financial District in New York City, on Dec. 19, 2018. Drew Angerer/Getty Images

FedEx has announced plans to increase its general tariff rates by its biggest margin as the company grapples with inflation and slowing business.

“Effective January 2, 2023, FedEx Express, FedEx Ground, and FedEx Home Delivery rates will increase by an average of 6.9 percent,” the company said in a news release on Sept. 22. The general rate increase of 6.9 percent is the largest annual hike in the company’s history, according to FreightWaves.

In addition, the firm will raise FedEx Freight rates “by an average of 6.9–7.9 percent dependent on the customer’s transportation rate scale.” This is the first time in eight years that FedEx has raised freight rates by more than 4.9 percent.

According to the company’s latest rate list, the cost of overnight delivery for a one-pound envelope by 8 a.m. the next day will rise by 4.4 percent, to $68.04. The cost of two-day delivery by 10:30 a.m. will be $25.37, an increase of 7.9 percent.

The rate-hike decision was announced as part of the company’s fiscal 2023 first-quarter earnings report. FedEx’s net income for the three months ended Aug. 31 was at $875 million, a decline of more than 20 percent from the $1.1 billion in net income earned during the year-ago period.

During the earnings call, CEO Raj Subramaniam blamed rising prices for the poor performance.

“What we did not anticipate, to be perfectly honest with you, was the tremendous inflation of costs that hit us squarely last year. And that was what really got us,” he said, according to The Motley Fool.

In a recent interview with CNBC, Subramaniam conceded that he is concerned about a potential global recession and that the company will soon be closing multiple stores due to “significantly worsened” macroeconomic trends.

Excess Capacity, USPS Rate Increase

FedEx’s decision to raise shipping rates comes as the company now has excess capacity. In the quarter ended Aug. 31, the average number of packages handled daily by the company declined by 11 percent from the previous year, according to The Wall Street Journal.

Though the company’s revenues were boosted, despite declining volumes, thanks to an increase in fees, profit margins were negatively affected by operating expenses.

Meanwhile, the U.S. Postal Service (USPS) also announced a temporary increase in peak season rate this year.

The hike, which is expected to come into effect on Oct. 2 and remain in effect until Jan. 22, 2023, will keep USPS competitive while giving the agency the necessary revenue to cover extra costs due to peak season volume, it said in a new release. on Aug. 10.

During a meeting of the Postal Service Board of Governors on Aug. 9, USPS Postmaster General and CEO Louis DeJoy warned about more hikes in January due to inflationary pressure.

“Inflation has hit the nation hard, and the Postal Service has not avoided its impact. We expect inflation to exceed our expectations by well over a billion dollars against our planned 2022 budget,” he said.