FedEx to Raise Rates by 4.9%
This story appears in the Dec. 14 print edition of Transport Topics.
FedEx Corp. said it will raise Ground and Home Delivery rates by an average of 4.9% in 2010 and also reported that its fiscal second-quarter earnings will be higher than Wall Street expectations, mostly because of volume growth.
The rate increase matches one announced last month by UPS Inc. In both cases, the increases take effect Jan. 4.
The earnings for the quarter ended Nov. 30 will be about $1.10 a share, well above the company’s guidance of 65 cents to 95 cents a share issued in September, when its fiscal first-quarter earnings were announced.
Though earnings will top expectations, they still trailed $1.58 a share in the comparable quarter of fiscal 2009. FedEx will report its second-quarter earnings on Dec. 17.
“FedEx will exceed previous earnings guidance in the second quarter, primarily due to better-than-expected growth in FedEx International Priority and FedEx Ground volumes, coupled with the benefits of our continuing cost-control programs,” said Alan Graf Jr., FedEx Corp.’s chief financial officer.
FedEx also said it would raise SmartPost rates, as well as adjust fuel surcharge calculation procedures for Ground and Express shipments.
For overnight shipments, FedEx’s Express increase is 3.9%, with a decline of two percentage points in its fuel surcharge. UPS will charge 4.9% more for those shipments, also including a fuel surcharge lowered by two percentage points.
Both UPS and FedEx said more details of the rate changes will be available Dec. 18.
The U.S. Postal Service has said it will raise Priority Mail rates 3.3% next year.
Late last year, FedEx and UPS announced 5.9% rate increases for 2009.
The list price announcements have limited significance, Robert W. Baird analyst Jon Langenfeld said in an investor note, because actual rates are set by the competitive marketplace, where 2009 revenue-per-package trailed 2008 levels.
“UPS and FedEx need to find an attractive balance between [market] share and pricing, similar to how the railroads have decided to compete,” Langenfeld said. “2010 will be telling to investors whether UPS and FDX have learned how to drive better price performance.”
He said he expects that both companies can be more successful in raising prices because DHL Express no longer is competing for the U.S. domestic package business.
DHL’s pullback to focus on international packages in North America prompted UPS and FedEx to price aggressively to capture that business.
“Encouragingly, UPS has made this pricing focus one of its highest priorities in 2010 with sales incentives and discounting initiatives being better aligned to drive improved pricing,” Langenfeld wrote.
On the earnings front, Graf said, “Year-over-year growth in our U.S. overnight express and FedEx International Priority services increased each month during the quarter, aided by inventory restocking and our successful sales efforts.”
He also said international demand has risen significantly since the prior quarter, with growth concentrated in Latin America and Asia.
