Rising internal costs push FedEx to raise shipping prices.
FedEx CFO Alan Graf told the Wall Street Journal that the cost of e-commerce deliveries will most likely see a spike in an effort to offset the cost of ground shipments. As a result of a jump in e-commerce over the holidays, FedEx’s Q3 revenue from its e-commerce-dominated ground unit rose 30 percent to $4.41 billion.
Despite that increase, however, the company’s ground-shipping income fell from $559 million to $557 million due to higher costs from the company’s network expansion and peak holiday demand, the company reported last Wednesday.
While e-commerce continues to grow, in large part buoyed by omnichannel efforts at many brick-and-mortar stores, the costs are great, especially for retailers offering low or zero shipping fees for orders and returns. It’s a hard balance, as customers increasingly want their products fast and at the lowest possible shipping fees.
“There’s an enormous interest in people having things delivered to themselves. It does not change, one iota, the input costs of the delivery,” chief executive officer Fred Smith said. Expanding on this was their CFO Alan Graf, Jr., who stated that “we can’t build these networks and spend this kind of capital and not get a return on it,” in response to the increase in ground deliveries and consumer expectations.
FedEx CEO Fred Smith also said that the company will increase its fees for shipping large items and items that don't fit into its ground network, and said that the USPS is partially to blame for encouraging customers' expectations for low-cost delivery.
“The postal service’s rates, which are the primary driver of e-commerce…they’re going to have to go up as mail service goes down,” Mr. Smith said.
None of this is good news for retailers, since if FedEx boosts its rates, other delivery providers like UPS are sure to follow suit. “Any increase in ground delivery costs will be directly forwarded to the consumer as soon as they choose the desired shipping option upon checkout. If there is a cheaper option, say USPS or another competitor with lower shipping, they will instinctively take that option, of course,” Brian Gibbs, President of Refund Retriever told Forbes. Refund Retriever’s primary focus is parcel audit recovery and parcel management.
Gibbs continued, “But the more important issue here is that consumers will begin to exclusively choose the larger eCommerce retailers that offer free or flat rate shipping as rates increase… something smaller retailers typically are not able to offer.”
