FedEx says it is shielding small shippers from surcharges

Ontime logistics the lastest news reported. Peak surcharges put in place in June as parcel volume soared buoyed FedEx earnings in the quarter ending August 31. FedEx Ground volume was up 31% YoY and operating margin was up 240 basis points YoY. But the carrier said not all customers are subject to the surcharges, which will begin to increase again in October.

Since FedEx Ground launched Sunday delivery, now covering 95% of the U.S., the carrier has been working to increase the delivery volume on that day. Shipper incentives are part of that equation.

“When you are operating a seven-day network, we have untapped capacity existing within that network if customers want to take advantage of that untapped capacity,”  CEO of FedEx Ground Henry Maier said. Saturday, Sunday and Monday deliveries and Friday, Saturday and Sunday pickups are particularly attractive to the carrier to improve shipment volume distribution and delivery density.

Small and medium businesses make up a particularly valuable customer segment for FedEx and its competitors. Smaller shippers tend to lack negotiating power due to their smaller volume. As a result, small businesses generally pay higher rates per shipment and thus carrier competition for their business is fierce.

One of the main reasons behind FedEx’s moves to create retail locations within existing Dollar General and Walgreens stores is to give smaller shippers the ability to use the locations as a shortcut to omnichannel offerings, Carere said Tuesday.

But with UPS and FedEx upping surcharges and USPS raising rates, the peak season is going to be a tough one for smaller shippers, according to small parcel experts. Still, small and medium shippers were FedEx’s fastest-growing customer segment in the most recent quarter, according to Carere.

FedEx is making the most of the opportunities on offer in the current market, Morgan Stanley analysts wrote in a research note. Efforts to capitalize on the lack of belly cargo in the airfreight market have increased demand for FedEx Express and led the Carere to say, ”We believe this is an opportunity to disintermediate traditional freight forwarders’ commercial relationships.”

But Morgan Stanley is skeptical all these wins will last beyond the pandemic.

“We still believe that eCommerce is an extremely challenging business with low returns,” wrote the analysts, estimating the per package yield for Express was down roughly 4%, including June’s surcharges.

The step-change in e-commerce adoption by consumers has moved up FedEx’s prediction that the U.S. would reach 100 million packages per day from 2026 to 2023, Carere said. The carrier is still not providing any financial or volume guidance.


Post time: Sep-22-2021