FedEx Announces Strategic Rate Adjustments to Challenge UPS Amid Labor Cost Concerns

Rate Changes Take Effect January 1, 2024

Memphis, TN – FedEx Corp. (NYSE: FDX) made an early announcement on Tuesday detailing a 5.9% increase in tariff rates for most of its U.S. services. This marks a reduction from last year’s 6.9% increase, sparking speculation that FedEx aims to seize market share from UPS Inc. (NYSE: UPS), which recently entered a five-year contract with the Teamsters union that included substantial labor cost hikes.

Targeted Increases

The announced tariff adjustments will primarily affect FedEx Ground and FedEx Express services. FedEx Express increases will be applicable to both domestic and international air services involving the U.S. For FedEx Freight’s less-than-truckload services, the company disclosed rate increases between 5.9% and 6.9%. Rates for FedEx Economy, the company’s budget-friendly deferred delivery option, will also see a hike, although the percentage increase remains unspecified.

 The Impact on Contract Negotiations and Industry

General rate increases (GRI) serve as a crucial starting point for contract negotiations, prevalent in the parcel delivery industry. With this announcement, FedEx has initiated the conversation earlier than usual. According to industry experts, the finalized rates often exceed the announced GRI, once factors like fuel and other delivery surcharges are considered.

Labor Costs and UPS

Unionized UPS workers secured a $2.75-an-hour wage increase in the first year of their contract. Overall, the wage and benefit increase for the first year is estimated at around 9%. In the subsequent years, the rate of increase drops substantially, rising again, though less dramatically, in the fifth year.

Peak Season Surcharges Also Announced

FedEx also released details about surcharges for peak season services, with residential delivery surcharges varying based on a shipper’s weekly volumes starting Oct. 9. Additionally, other per-package and specialized surcharges will increase for the peak season, effective from Oct. 2 through Jan. 14.

The Road Ahead

Both FedEx and UPS have traditionally moved in near lockstep with their general rate increases. Given the new labor costs, UPS may need to re-strategize to keep pace with FedEx’s latest moves. It remains to be seen how UPS will respond to this unexpected competitive pressure as both companies gear up for a busy 2024.