Dive Brief:
- FedEx's pricier peak season surcharges in 2024 will help the carrier improve profitability after a challenging quarter, EVP and Chief Customer Officer Brie Carere said in an earnings call Thursday.
- While the peak surcharges will impact shippers across the board, most of the pressure will stay on large-scale customers that see volumes spike, Carere said. The company is confident it will be able to levy the fees without scaring too many customers off, and already has fees pre-negotiated with larger shippers.
- "I am optimistic about the capture because I think customers do understand that there's a lot of pressure on the network, especially this year," Carere said, noting the shorter period between Black Friday and Christmas for 2024.
Dive Insight:
As the shipping giant weighs a spinoff of FedEx Freight, its LTL trucking arm saw a 9% year-over-year drop in operating income in the quarter, the company said in an earnings filing. Its Express unit’s earnings plummeted 27% year over year.
Amid weaker-than-expected demand — average daily volume at its Express unit was about flat year-over-year — FedEx is looking to extract more revenue from added fees for shippers. Rival UPS is advancing a similar strategy via its own increases to peak season surcharges.
However, this approach could be challenged in a cost-conscious environment in which businesses are leaning more on slower and less expensive delivery services. That trend persisted for FedEx for the quarter that ended Aug. 31, with its priority services seeing demand decline, while its international economy offering experienced a 35% year-over-year surge in average daily volume.
The delivery giant aims to reduce the impact of this shift to less profitable services "through surcharge management and optimizing our customer mix," the company noted in a securities filing Thursday.
One way FedEx will do that beyond peak fees is by increasing its international fuel surcharge calculations starting Oct. 7. This means fuel fee markups on applicable deliveries will increase by 475 basis points despite declines in spot prices for jet fuel, aligning the company with UPS, according to Shipware. The hike will occur a few weeks after the latest increase for FedEx's ground shipping fuel surcharges.
"We think that this is the right mix and the right approach to make sure that we are growing our yield," Carere said of the international fuel surcharge increase.
Higher fuel surcharges helped per-package revenue in FedEx's Express unit in its most recent quarter, with "a significant positive effect on yields across all package and freight services," the filing said.
