FedEx announces largest general rate increase in its history
Posted on October 13, 2022
Written by Mickey Powers
FedEx Corp. announced late Thursday a 6.9% general rate increase (GRI) for 2023, the largest year-over-year increase in its history.
The increase will apply to all FedEx (NYSE: FDX) services except for its less-than-truckload service, FedEx Freight. Increases there will range between 6.9% and 7.9%, depending on the customer’s transportation rate scale, the company said.
Typically, FedEx raises its annual tariff rates between 4.9% and 5.9%. Analysts were expecting a 2023 GRI increase of 6% or more to offset the impact of cost inflation.
On one level, GRIs, which apply to noncontract shipments, are symbolic because virtually all parcel deliveries move under contract. However, the level of contract rate increases, and the discounts granted from those increases, are pegged to actions that parcel carriers take with their GRIs. As a result, GRIs are a key barometer on what rates and discounts that shippers can expect in their contracts.
Along with the GRI increase, FedEx said it plans to save between $2.2 billion and $2.7 billion during the current 2023 fiscal year through cost reductions at its FedEx Express air and international unit and its FedEx Ground U.S. delivery unit. The company said it would reduce the number of FedEx Express flights and temporarily park an undetermined number of aircraft. Those moves will save between $1.5 billion and $1.7 billion, the company said.
FedEx said it will save $300 million to $500 million at its FedEx Ground unit by closing certain sortation operations and suspending some Sunday delivery operations. It did not shutter virtually all of its costly Sunday delivery network as some have advised.
In addition, FedEx plans to cut $4 billion of costs by fiscal 2025, which starts June 1, 2024. The company said it will stick with its plan, announced in late June, to realign its network and end the siloed operations among its three business units.
The company also officially published its fiscal first-quarter results, which were a de facto formality in light of its pre-announcement last Thursday of a 69% year-over-year decline in operating income at FedEx Express.
FedEx blamed the massive drop at the unit on sudden weakness in trans-Pacific air volumes that hit in the final weeks of the quarter. Cost measures lagged the declines in volume, and operating expenses remained high relative to demand, the company said.
The stunning pre-announcement caught everyone by surprise and sent FedEx shares down more than $40 a share during last Friday’s trading.