FedEx, UPS to raise rates up to 10% in 2023

by Kim Souza ([email protected]) 2,019 views 

Shipping costs are projected to increase between 8% and 10% in 2023 from FedEx and UPS, the two largest U.S. package delivery companies, according to a Dec. 16 report from TransImpact.

The shipping consultancy predicts there will be virtually no difference in 2023 rates between FedEx and UPS. Though the rates will differ depending on specific products, the all-in result is there will be virtually no discrepancy between the carriers, the report noted. Both have announced record 6.9% general rate increases (GRIs) for 2023. However, virtually all parcel traffic moves under contract.

TransImpact said UPS rates for three-day deliveries will be about 15% below those of FedEx and UPS will also underprice on second-day morning service in the U.S. and on most international routes. However, FedEx will underprice UPS on the carriers’ slowest and least expensive ground services, TransImpact said. UPS’ SurePost service is managed in conjunction with the U.S. Postal Service, which delivers UPS’ parcels. The report said there will not be much total difference in the delivery charge increase of two carriers in 2023 but there will be some variance depending on the specific surcharges, the report noted.

The report said both carriers will retain their per-pound international delivery surcharges in 2023, first instituted to combat the declining air cargo capacity during the first two years of the pandemic. TransImpact said a lack of price gap between UPS and FedEx is not really a surprise given the companies’ move to be competitive, but each company has unique challenges that resulted in rate increases.

FedEx has been hit by high double-digit labor cost increases at its FedEx Ground unit since 2021, the report noted. By contrast, UPS has been shielded from the surge in labor cost inflation because its 2018 contract with 380,000 members of the Teamsters union locked in modest annualized increases over the past five years.

FedEx on Tuesday reported second fiscal quarter net income of $788 million, down from $1.04 billion in the same period of 2021. Earnings per share of $3.07 was better than the consensus estimate of $2.82 per share. The Memphis-based company also said it is reducing full fiscal year capital spending by $400 million.

In 2023, UPS will face a significant cost adjustment when the Teamsters contract comes up for renewal in July, the report said. The Teamsters leadership have already said they plan to ask for a significant wage increase during the next contract negotiations.

The growth of online commerce has forced UPS and FedEx to invest in infrastructure and workforce during the pandemic, but now as demand is cooling, the package carriers will be working to protect margins through higher rates, the report said.

Trucking industry carriers said they expect freight volumes to decline in 2023 as the economy slows. Among major long-haul freight carriers that serve retailers there is pressure on freight rates amid declining volumes and excess capacity in containers compared to the past couple of years. However, less-than-truckload carriers expect to raise rates in 2023 between 5% to 14% depending on company and freight lanes, according to a recent survey from Peerless Research Group.