FedEx has announced its general rate increase for 2020, which will take effect on Jan. 6, 2020.

In brief, FedEx’s list rates will rise by an average of 4.9%.Unauthorized and oversize packages will see particularly large increases.

Fuel surcharges will also be added to additional surcharges starting Jan. 20. These include Additional Handling Surcharge, Delivery Signature Options and Collect on Delivery surcharges for FedEx Express and Ground

To stay ahead of these increases, use your company’s unique shipment data as a foundation. When you understand what you currently spend on transportation charges and certain surcharges, then you can clearly see how the increases will impact you — and spot ways that you can mitigate that impact.

FedEx Rate Increases in Recent Years

FedEx, like its primary competitor UPS, has raised list rates by a predictable 4.9% for the last few years. In their 2018 shipping rates, both companies dropped their dimensional divisors to 139 for all packages.

In 2018, FedEx targeted large packages for its biggest surcharge increases. It also changed the parameters for packages that warranted oversize package surcharges and additional handling surcharges: FedEx began applying those fees to packages about 25%smaller than those that triggered surcharges in the previous year.

In FedEx’ 2019 rate increases, additional handling and oversize package surcharges increased again. FedEx also upped address correction fees and residential delivery charges.

All of these changes reflect FedEx’s desire to make last-mile delivery more profitable for the company.

Dimensional weight pricing penalizes boxes that are large but lightweight, which, from FedEx’s perspective, take up more room on trucks than tightly packed boxes do. Large and heavy packages can be difficult to place on conveyor belts, making the process of sorting and transporting around their hubs, stations, and terminals more cumbersome. And, generally speaking, residential deliveries are more expensive than commercial ones — so tacking on an extra fee there helps FedEx maintain profit margins as its residential delivery business grows.

How FedEx is Faring in 2019

FedEx has made headlines a few times so far this year.

In May, the company announced that it would make Sunday delivery a standard offering.

In June, the company announced a new package drop-off and pick-up partnership with Dollar General. FedEx already has similar relationships with Walgreens, Albertson’s and Kroger. The pilot began with 1,500 Dollar General stores and announced plans to expand to 8,000 locations by the end of 2020 — which will put some 80 percent of Americans within five miles of a FedEx drop-off or pick-up location. But Dollar General has a much larger footprint than FedEx’s other partners in rural areas, where residential deliveries are particularly inefficient and expensive. If the Dollar General partnership can help reduce even a fraction of those last-mile expenses, it could be big news for the company’s bottom line.

Also in June, FedEx announced that it would not renew its Express domestic contract with Amazon. That means FedEx will no longer be delivering packages for most Prime shipments — at a time when Amazon is trying to turn Prime from two-day into one-day shipping in select markets.

FedEx Rates for 2020

The changes that FedEx announced for 2020 are:

  • List rates will increase by an average of 4.9% for FedEx Ground, Home Delivery, and Express package and freight. 
  • Accessorial fees and surcharges that are increasing include:
    • Extended Service Area Delivery is rising from $140 per shipment to $175
    • Ground Unauthorized Package will jump from $675 per package to $875
    • Oversize packages for FedEx Home Delivery will increase from $90 per package to $120

In addition to the price increases on base rates and surcharges, FedEx is changing its criteria for packages subject to additional handling surcharges. In 2019, packages that weigh more than 70 pounds were subject to this fee. For 2020, the threshold drops to 50 pounds for FedEx Express Package and Ground services. Dimensional criterial remains the same. 

It’s important to note that not every FedEx customer will see their shipping spend increase by the same percentage. About 35 percent of most shippers’ budgets are eaten up by surcharges, which can vary dramatically from one customer to another. Make sure that you understand how these increases will impact your business and your bottom line.

Preparing for FedEx Rate Increases

Some of these changes, like list rates and fuel surcharges, affect every shipper that uses FedEx. Others, like changes to dimensional weight rules or certain surcharges, affect only certain packages.

As your supply chain leadership examines rates for FedEx in 2020, zero in on the changes that will affect your company the most. Your managers should know the size and weight of each standard package that their company ships, so that when FedEx targets large packages for surcharges — often by reducing the dimensions of the packages that they consider “large,” so smaller and smaller parcels fall into the category — they can quickly get a sense of which of your core products will be affected. In the same way, leaders should be able to quickly identify parcels that will be priced according to dimensional weight.

Once you have this data, identifying which parcels will be impacted by rate increases should be pretty straightforward. Discuss whether there are any changes you can make to dodge new or increased surcharges, such as modifying your standard packaging or offering discounts to customers who buy two items that can be packaged together at the same time.

If those internal changes prove too time-consuming or expensive, consider updating your contract itself. The rates that FedEx announced this week are not set in stone. In fact, Reveel’s expert consultants can help you prepare for contract negotiation by identifying specific requests that you can make — focusing on those that will most protect your bottom line.

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