FedEx announces largest overall rate increase in its history

FedEx Corporation on Thursday evening announced a 6.9% general rate increase (GRI) in 2023, the largest year-over-year increase in its history.

The increase applies to all FedEx (NYSE: FDX). The increase will range from 6.9% to 7.9% depending on the scale of the customer’s transportation rates, the company said.

Typically, FedEx raises annual rates from 4.9% to 5.9%. Analysts expected GRI growth to be 6% or more in 2023 to offset the impact of cost inflation.

On the one hand, the GRIs applicable to non-contractual supplies are symbolic because virtually all parcel deliveries are made under contract. However, the level of the contract rate increases and the discounts provided as a result of this increase are tied to the actions that parcel carriers take with their GRIs. As a result, GRIs are a key barometer of what rates and discounts shippers can expect in their contracts.

Along with the increase in GRI, FedEx said it plans to save between $2.2 billion and $2.7 billion during the current fiscal year 2023 through cost reductions at its FedEx Express air and international division and at its FedEx Ground US division. The company said it will reduce the number of FedEx Express flights and temporarily park an unspecified number of aircraft. The moves will save between $1.5 billion and $1.7 billion, the company said.

FedEx said it would save between $300 million and $500 million at its FedEx Ground unit by closing some sorting operations and suspending some Sunday delivery operations. It has not shut down virtually all of its expensive Sunday delivery network, as some have advised.

The planned spending cuts for fiscal year 2023 are part of a plan to reduce spending by $4 billion through fiscal year 2025, which will begin on June 1, 2024. The company said it would stick with its plan announced in late June to reorganize its network and end siled operations among its three business units.

The company also officially released its first fiscal quarter results, which were a de facto formality in light of last Thursday’s previous announcement of a 69% year-over-year decline in operating profit for FedEx Express.

FedEx blamed the big drop on the block on a sudden weakening in trans-Pacific air volumes that occurred in the final weeks of the quarter. Cost metrics lagged volume declines and operating costs remained high relative to demand, the company said.

The stunning advance announcement caught everyone by surprise and sent FedEx shares down more than $40 a share during trading last Friday.

The TOP 500 FREIGHTWAVES The list of hired carriers includes FedEx (No. 1).