FedEx Joins Rush to Add Fees as Holiday Delivery Surge Looms

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FedEx Corp. is joining a rush to apply extra holiday fees on high-volume shippers as couriers brace for a new jump in residential deliveries during the year-end peak season.

Surcharges on regular shipments to homes will range from $1 to $5 from Nov. 2 to Jan. 17, FedEx said on its website Tuesday. That marks the first time since 2016 that the company has applied special peak-season fees, and the move follows similar efforts by United Parcel Service Inc. and the U.S. Postal Service.

“As the impact of the virus continues to generate a surge in residential deliveries, we are entering this holiday peak season with extremely high demand for capacity and are experiencing increased operating costs across our network,” FedEx said. “We anticipate residential volume to continue to surge into the new year.”

Demand for residential deliveries has soared since mid-March when the coronavirus pandemic drove U.S. consumers to stay home and order online. FedEx’s ground deliveries rose about 20% for its quarter running through May, similar to UPS’s second-quarter increase. The Postal Service‘s package volume increased 50% for the quarter ending in June.

FedEx was little changed at $206.53 at 1:27 p.m. in New York. The shares rose 37% this year through Monday, with UPS posting a similar gain. A Standard & Poor’s index of U.S. industrial companies fell 5.3%.

Capacity Concerns

With people making more purchases online than ever, the holiday delivery surge likely will set records, raising concerns among shippers over package-handling capacity. Meanwhile, the jump in package volume has handed couriers pricing power.

Holiday surcharges will put more cost pressure on retailers, many of which are already facing higher delivery expenses because they’re selling more online than normal amid the pandemic.

Kohl’s Corp., which said higher shipping costs hurt its second-quarter margins, said it would seek to entice customers to shop earlier this holiday season and pick up orders at the store. The clothing retailer also will work to bundle orders more to drive down shipping costs.

“We have great relationships with both of the vendors that have announced these surcharges and our teams are working through with them,” Chief Financial Officer Jill Timm said Tuesday in a conference call with analysts.

For FedEx customers with average weekly packages of at least 35,000, charges will rise $1 to $4 a package for ground deliveries and $2 to $5 for express shipments. The increase depends on the surge over normal volume.

For the least expensive delivery option, known as SmartPost, FedEx will charge an extra $1 a package during the beginning and end of the peak period while boosting the fee to $2 from Nov. 30 to Dec. 6. SmartPost is available only under a shipper contract, FedEx said.

The Memphis, Tennessee-based company continues to discourage oversize packages that are difficult to sort and more expensive to deliver. Surcharges for those large items will be $52.50 apiece and run from Oct. 5 to Jan. 17

Both FedEx and UPS introduced surcharges earlier this summer, in part to make up for some of the extra cost to keep workers safe while operating during a pandemic. This latest move isn’t a surprise. FedEx’s Chief Marketing Officer Brie Carere said in June there would be surcharges this peak season.

Still, in the case of UPS, shippers hadn’t expected the hefty size of the surcharges, which are aimed at large shippers who send 25,000 packages a week or more. Depending on the volume above February levels, the UPS surcharges could rise to $3 for ground packages and $4 on air deliveries.

The Postal Service joined in last week with its first-ever peak-season surcharges on packages, ranging from 24 cents to $1.50 on express deliveries.

©2020 Bloomberg L.P.

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