FedEx And UPS Raise Freight Rates

Leading package delivery companies United Parcel Service UPS (NYSE:UPS) and FedEx (NYSE:FDX) plan to increase their freight rates by 5.9% and 6.9% on non-contractual less-than-truckload (LTL) shipments in the U.S., Canada and Mexico this month. The hike has been an industry-wide phenomenon and the move at FedEx and UPS has been followed a with a simultaneous increase in rates at other freight carriers like Con-Way, YRC Freight and ABF Freight. On an average, the LTL rates have gone up by 6.9% across the industry despite the weak demand due to macroeconomic uncertainty.

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The logistics services companies company offer less-than-truckload (LTL) and truckload (TL) services to customers through its Freight segment, which generates almost one-fifth of their revenues. LTL shipments involve shipping of bulky items that weigh more than 150 pounds. The trucking companies usually consolidate loads from multiple shippers in a single LTL trailer. ^[1] These LTL rate hikes are separate from the small-parcel shipping rate increases announced by FedEx, UPS and the U. S. Postal Service for 2012 for ground packages, air express and the U.S. origin international shipments.

These rates hikes will help them improve their yield and deal with near-term headwinds such as rising fuel prices and growing capital investments. FedEx and UPS have been dealing with weak domestic demand due to slowing GDP growth as well as recent softening international growth, particularly in Asia. There has also been a strong trend away from premium traditional air freight to cheaper and slower ocean freight.

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1. UPS and FedEx Raise Freight Rates, Internet Retailer, July 2012 [↩]