Will Increased FedEx Rates Harm Retailers?

FedE FDX x announced it will add a surcharge on certain parcels starting mid-February. It raised concern about the cost effects, since UPS took similar action during the holiday season.

The FedEx charge of charge of 30 cents per package applies to FedEx Express and FedEx Ground U.S. domestic Residential packages starting February 15. SmartPost packages have been subject to peak surcharges of 75 cents per package since January 18. This action was taken by FedEx since their volume will increase by 22%.

The charges will depend on a customer’s volume and FedEx determines the threshold when the charges apply. FedEx stated that customers who ship more than 30,000 packages weekly, will have to pay the Peak Residential charge.

One must regard the strength of the FedEx’s global express network as a distinct advantage for retailers who can deliver their goods quickly and efficiently. However, the delivery surcharges will raise operating costs unless it can be passed on to the consumer.

Returns from the holiday shopping promotions were heavy and put a burden on the major transportation companies. FedEx added an estimated 70,000 additional workers in the fall season to help expedite shipments. While some workers stayed with FedEx only through the holiday season, many were retained for the post-holiday returns and were kept for the continued shopping increases the company’s customers have experienced. I believe that the current trend will continue.

My recent interviews with shoppers bear out the fact that many shoppers do not want to return to stores at this time, despite their receiving the vaccine for COVID-19 virus. That means stores must be prepared to serve their clientele through e-commerce. I am told that apparel returns exceed 60% of merchandise purchased digitally. This heightens the importance of an efficient carrier like FedEx and UPS.

Can these charges be passed on to the consumer?

In theory - yes. It is easy to tack on a 50 cents charge to every garment sold. The customers may wince, but will accept the charge in the pandemic environment. Practically, it become tougher for retailers to make these changes from an operational point of view. The charges are per shipment, not per garment which is a bookkeeping headache. Rising costs also cause inflationary pressures on the customer. It is more likely that retailers will absorb the cost at this time, hope that the charges are temporary and they will add additional gross margin as costumers purchase more merchandise on-liner in the future.

That’s probably a better solution since charges tend to stick and retail prices should not fluctuate that much. Ultimately, retailers are demanding more speed. The carriers can only give more speed if the have the manpower to work extra hours necessary to deliver the packages with a smile.