UPS, FedEx up rates to help recover revenues

Package carriers United Parcel Service and FedEx Corp. are both boosting rates for 2011 in part to recover freight revenues lost during the global economic downturn – particularly in the U.S. LTL market

Package carriers United Parcel Service and FedEx Corp. are both boosting rates for 2011 in part to recover freight revenues lost during the global economic downturn – particularly in the U.S. LTL market.

UPS won’t reveal specific rate increases for its divisions until Nov. 12, but noted it is raising rates on ground shipment, air express parcels, and U.S.-origin international shipments rates by a net of 4.9%,effective Jan. 3rd.

The rate increase for UPS ground shipments is based on a 5.9% increase in the base rate, less a 1% reduction to the index-based ground fuel surcharge. The rate increase for air express and international shipments is based on a 6.9% increase in the base rate, less a 2% reduction to the index-based air and international fuel surcharge.

FedEx said it will increase shipping rates for FedEx Express by a net average of 3.9% for U.S. domestic and U.S. export services effective Jan. 3rd as a full rate increase of 5.9% will be partially offset by reducing its fuel surcharge by two percentage points.

The company’s LTL divisions – FedEx Freight and FedEx National LTL – will both implement 6.9% general rate increases effective Nov. 1 this year, applying to interstate and intrastate LTL shipments, as well as shipments between the U.S. and Canada covered by the FXF 1000 and FXNL 501 Base Rates.

“This pricing adjustment will allow for key investments that will enable FedEx to continue to provide industry leading service and shipping solutions,” said T. Michael Glenn, FedEx executive vp for market development & corporate communications

Jon Langenfeld, transportation analyst with investment firm Robert W. Baird & Co., noted in the company’s most recent “Freight Flows” brief that these general rate increases by LTL carriers highlight an industry increasingly focused on improving yield, given limited profitability in an “improved demand” environment.

He added that Baird's Domestic Freight Index, dropped to +4.3% year-over-year in September, vs. +4.8% in August. That reflects slowing demand growth as inventory replenishment subsides and shippers align themselves for a slow-growth economy.

“A slow-growing U.S. economy of just 2% GDP [gross domestic product] growth will drive further capacity constraints, leading to improved contractual and spot market rates,” Langenfeld said.

UPS and FedEx may also be looking for ways to recoup LTL revenues lost in the downturn as well. Industry sources note that, in 2009, the top 25 LTL carriers lost 23.8% of their revenue, dropping to $25.2 billion after holding steady around $33 billion during the recessionary years of 2006-2008.

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