FedEx issues 2009 rate hike to offset market softness

As volumes slow and costs spike, logistics giant pushes 6.9% rate hike

By Dave Hannon -- Purchasing, 9/18/2008 7:28:00 AM

FedEx will increase its Express rates 6.9% in January in an effort to offset its sluggish volumes and higher fuel costs reported for the quarter ended Aug. 31.

After reporting a 22% profit decline in the quarter, FedEx said in a statement the rate increase will be partially offset by adjusting the fuel price at which the fuel surcharge begins, reducing the fuel surcharge by two percentage points. FedEx’s ground rates will increase also, but the company has not said how much.

Daily volume in FedEx's Express and Ground segments increased 1% in the most recent quarter but U.S. domestic package volume fell 5%. FedEx officials said operating results in its Express business were impacted by “global economic weakness, higher fuel prices and the related negative effects of higher fuel surcharges, and one fewer operating day. These factors more than offset the benefits of aggressive cost containment activities, including volume-related reductions in flight hours, labor hours, fuel consumption and maintenance costs and decreases in variable incentive compensation.”

Its FedEx Freight less-than-truckload (LTL) business saw average daily shipments increase 4% year over year due to market share gains, despite the weak U.S. economy and a competitive pricing environment. LTL yield improved 5% year over year primarily due to increased fuel surcharges.

FedEx said that it has cut its capital expenditure plan to $2.6 billion for fiscal 2009. Last year, FedEx increased rates 6.9% but reduced fuel surcharge by 2%. That rate structure was matched by rivals UPS and DHL.

For more information on FedEx’s 2009 rates, click here.