FedEx Puts Surcharges On Several Types Of Packages

Less than two weeks after United Parcel Service, Inc. UPS posted surcharges on all types of delivery, FedEx Corporation FDX has followed suit.

In a late announcement on June 3, FedEx rolled out several different types of surcharges, depending on the type of shipment. The surcharges go into effect on Monday, June 8.

A temporary surcharge of 40 cents per package was put on FedEx SmartPost packages. FedEx SmartPost is what is known as "postal injection," wherein FedEx has the U.S. Postal Service (USPS) make the final delivery. "FedEx SmartPost offers a customized solution – we pick up (or accept drop shipments), provide line haul and deliver your packages to a USPS facility for final delivery by a postal carrier," describing the service on the FedEx website. 

FedEx Smart Post is a contract-only service. 

FedEx also is applying a $30 per package surcharge on oversized deliveries during peak times. FedEx defines oversize as a package that exceeds 96 inches in length or 130 inches in length and girth combined. 

The third surcharge is a peak residential delivery charge of 30 cents per package. But that applies only to what FedEx calls "enterprise level" customers that meet certain criteria. The first is that in any given week, they ship 40,000 parcels via FedEx Express residential and FedEx Ground residential, excluding SmartPost and FedEx One, and second, their volume in that week is more than 120% of their average weekly volume from February. 

The Deutsche Bank transportation team led by Amit Mehortra, commenting on the move in the company's daily transportation email, noted that the growth of e-commerce "is very positive for FDX (and UPS) revenues, but extremely challenging for profitability because of density challenges on the last mile (i.e. the number of packages per stop in residential deliveries is about one-third of B2B deliveries… driving significantly adverse unit economics). As such we believe this is exactly the right move for both FDX and UPS to partially offset last mile density challenges."

In the note, Deutsche said it calculated that the UPS moves of May 31 amounted to about a 6% increase in shipping costs. They described the FedEx increase as "similar."

The move by UPS on May 31 added 30 cents per package for both UPS Ground Residential and UPS SurePost deliveries. UPS SurePost is like FedEx' SmartPost, with final delivery handled by USPS. The UPS move also added $31.45 per package to large packages. UPS defines large packages with similar dimensions as FedEx.

At the time of the UPS announcement, the Deutsche team projected that FedEx would follow suit. "Ultimately, this is exactly the right thing for UPS to do given the…mix and profitability challenges, and we wouldn't be surprised to see FDX following suit shortly."

The move by FedEx had no obvious impact on its stock price. At approximately 10:30 a.m., FedEx stock was down $1.20 to $136.88, a decline of 0.87% on a day when the broader S&P 500 was down to mostly unchanged.