FedEx Raising Shipping Rates by 6.9% Outlines Cost Cuts

The company's June-August revenue increased slightly on higher fees, while profits fell considerably.
Portland, OR, USA - Nov 8, 2021: Closeup of the company logo see

One week after sharing preliminary earnings results and previewing forthcoming major cost reductions, parcel delivery giant FedEx announced its 2023 first quarter fiscal results on Sept. 22 while also outlining the specifics of those savings initiatives.

The company said that, effective Jan. 2 of next year, it will increase shipping rates by an average 6.9% for FedEx Express, FedEx Ground and FedEx Home Delivery, while FedEx Freight rates will hike by an average of 6.9% to 7.9% depending on the customer’s transportation rate scale.

The increases come as FedEx and other parcel carriers deal with a slowdown in volume, giving them excess capacity. FedEx’s 1Q report showed that the average number of packages it handled daily in the June-August period fell 11% year-over-year and was the third straight quarter of declines.

FedEx’s 1Q revenue actually bumped up slightly to $23.2 billion from $22.0 billion a year earlier, but that was largely driven by higher fees that included fuel surcharges, helping offset lower volume. Profits were another story, as the company’s 1Q operating profit of $1.19 billion fell 13.6% year-over-year and total profit of $875 million sunk 21.2%.

During 1Q, operating profit sunk 69% at FedEx Express, driven by an 11% reduction in global package and freight volume; FedEx Ground operating profit increased 3% primarily due to higher fees and growth in FedEx Home Delivery; FedEx Freight operating profit jumped 67%, driven by higher fees.

As for cost savings, FedEx’s preliminary earnings announcement already noted that the company plans to reduce flight frequencies and temporarily park aircraft, along with consolidating some operations and reducing Sunday availability at a number of FedEx Ground locations. Hiring has also been idled and more than 90FedEx Office locations willb e closed, while five corporate offices will also shutter amid “additional real estate rationalization planning.”

“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial and capacity levers to adjust to the impacts of reduced demand,” FedEx president and CEO Raj Subramaniam said in Sept. 22’s earnings release. “As our team continues to work aggressively to address near-term headwinds, we’re meaningfully strengthening our business and customer experience, including delivering an outstanding peak.”

The company outlined cost savings initiatives that it expects to net $2.2 billion to $2.7 billion in 2023 savings, which includes $1.5-$1.7 billion at FedEx Express; $350-500 million at FedEx Ground and $350-500 million across shared and allocated overhead expenses. FedEx said it already realized approximately $300 million of these savings and expects to see about $700 million during 2Q (September-November).

Further out, FedEx Expects to achieve about $4 billion in savings across 2024 and 2025 via a “Deliver Today, Innovate for Tomorrow Strategy,” including $1.4 billino in FedEx Express, $1.1 billion in FedEx Ground and $1.5 billion in shared and allocated overhead expenses. FedEx also expects to achieve $2 billion in long-term benefits from its network optimization strategy.

Related Posts

About the Author
Recommended Reading
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

2

articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to mdm.com, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

Subscribe to continue reading

MDM Premium Subscribers get:

  • Unlimited access to MDM.com
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events

1

article
left

You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on mdm.com
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Join other distribution executives who use MDM Premium to optimize their business. Our insights and analysis help you enter the right new markets, turbocharge your sales and marketing efforts, identify business partners that help you scale, and stay ahead of your competitors.

Register for full access

By providing your email, you agree to receive announcements from us and our partners for our newsletter, events, surveys, and partner resources per MDM Terms & Conditions. You can withdraw consent at any time.