FedEx in early October said the rates for its Express business would climb 5.5% on average, but the good news was the company was lowering its air-fuel surcharge index by 2% in 2006, effectively making the overall rate increase 3.5% for Express shippers.
UPS followed-up by releasing rate information in November showing a 3.9% price increase for ground shipments and a 5.5% increase in air and international rates. UPS said it was reducing the index that it used to calculate its air fuel surcharges by 2%.
"I think FedEx wanted to get out in front of the curve on this issue to beat UPS to the punch," says Doug Caldwell of AFMS Logistics Management Group. "Having a 5.5% general rate increase, but reducing the fuel-surcharge index by 2% gives a 3.5%—net average rate increase. They wanted to get that out there first, because there is a huge disparity between UPS and FedEx in terms of fuel surcharges. FedEx is at 20% and UPS is at 12.5%."
"You have both FedEx and UPS basically giving out the same list price increases for 2006 and the message is clear in that neither wants a price war," said R.W. Baird analyst Jon Langenfeld in a recent news report. "If you layer their actions into the fact that you also have the (U.S.) post office increasing rates next year, it seems like the pricing environment is pretty healthy," he added.
Caldwell says the increased rates will likely drive even more shippers to look for opportunities to shift from air to ground whenever possible. "Shippers need to monitor the level of service they're using. When it comes to fuel, the carrier can help shippers identify air to ground shipments—sometimes it's hard to believe but they will do it to keep the business."
Accessorial—or extra—charges are becoming a bigger part of the small parcel budget, as well, and Caldwell says that trend is expected to continue throughout 2006.