Market Overview

FedEx Follows UPS, Hikes Shipping Rates By 5%


It seems a bumper holiday shopping season resulting in excessive demand for shipping has given a new found confidence to logistics and transportation majors to raise their rates. Following in the footsteps of UPS, FedEx Corporation (NYSE: FDX) announced on Monday it is raising rates by 5 percent and charging customers based on dimension of their package.

CNBC's Morgan Brennan reported on this and also took a look at how this will impact online shoppers and e-retailers.

"Now that the holidays are out of the way, it's all about these new rates. So last week, UPS hiked its air, ground and international prices 4.9 percent and today FedEx is doing the same, but here is where it gets interesting: Dimensional pricing. Now both carriers are now charging by size as well as weight and that’s on all ground shipments. Now that's the big change to focus on, directly targets e-tailers, bulky, lightweight packages that take up a lot of space, but haven’t until now cost a lot to ship," Brennan said.

Brennan explained how dimensional pricing will increase costs to customers, saying "under this new formula, a 17-inch square box weighing 3 pounds will be billed as if it's closer to 29 or 30 pounds instead of 3 like before."

Will Revenues Jump?

"Analysts say these rates mean more revenue and this as fuel surcharges move lower, but UPS and FedEx have been working with their customers in laboratories to pack more efficiently and to the big upside here, creating more space on trucks and planes for even more goods, but consumers are going to see those shipping bills increase […]," Brennan added.

Shares of FedEx traded recently at $170.60, down 1 percent.

Posted-In: CNBC Morgan Brennan upsMedia


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