Resource Center/Article10/20/2022

Record FedEx GRI and Amazon Speculation Ahead of 2023

FedEx announces a record GRI and last minute peak season forecast change, and analysts speculate on future of Amazon and UPS partnership.

Parcel Carrier News

  • 9/22: FedEx announced its largest YOY general rate increase (GRI) to date – 6.9% for 2023.
    • The carrier stated: “The increase will apply to all FedEx services except for its less-than-truckload service, FedEx Freight. Increases there will range between 6.9% and 7.9%, depending on the customer’s transportation rate scale.”
  • Tensions continue to mount between FedEx and its contractor network, as well as investors, after announcing that it has reduced its forecast for the number of e-commerce packages the carrier expects to deliver this peak holiday season.
    • For independent contractors that help fulfill last mile deliveries, the news is unwelcome as it reduces their potential earnings and impacts their strategy with a short amount of time to adjust. According to Reuters reporting, many of these contractors did not believe the earlier forecast projections to begin with and expressed lack of support from FedEx leadership.
  • Meanwhile, the carrier announced FedEx Express and the Air Line Pilots Association, Int’l, (ALPA) have requested mediation assistance from the National Mediation Board (NMB) to find a path forward in stagnant contract negotiations.
    • Leadership quote: “At the end of the day, we all want FedEx to continue to be a great place to work and to be positioned for success in the years to come. Mediation is a path we have gone down before and a process that has proved useful. We are hopeful that expedited mediation allows us to conclude negotiations and to reach an agreement that is fair and reasonable to pilots, other FedEx employees, our customers, and our stakeholders.”
    • Contract negotiations between the two parties last made news after FedEx pilots held an informational picket this past summer.
  • FedEx stock price changes from 9/22:
    • $3.44 earnings per share (EPS) for the quarter, consensus estimate of $5.14 ($1.70).
    • Revenue of $23.20 billion for the quarter, consensus estimates of $23.78 billion ($0.58B).
    • Analysts forecast that FedEx will post $14.53 EPS for the current fiscal year.
  • Market analysts speculate whether 2022 will be the last year of partnership for Amazon and UPS.
    • While U.S. inflation and an anticipated recession curb U.S. spending, speculation is on Amazon Logistics and the likelihood that it may be able to take on volume carried by UPS on behalf of Amazon. Ravi Shanker, a transportation analyst at Morgan Stanley & Co., believes Amazon may have box capacity upwards of 3.3B.
    • The number of packages UPS delivers for the e-commerce giant has been shrinking throughout the pandemic, with percentage of revenue credited to Amazon shipments dropping 1.6% YOY – from 13.3% in 2020 to 11.7% in 2021. Carol Tomé, UPS CEO, notably referenced contract changes between the two businesses in the Q2 2022 earnings call, stating “We’ve contractually agreed on what makes sense for us versus what makes sense for them. That means both volume and revenue for Amazon is coming down.”
    • But Shanker also estimates Amazon may account for a surprising 35-40% of UPS’ domestic shipments. Regardless, Amazon remains a portion of UPS’ annual revenue, and each party has kept public statements about their partnership short and expressing satisfaction with “status quo” for the moment.
    • A significant partnership factor here is one easily forgotten and often overlooked by the industry as a whole: returns. Today, Amazon shippers can return sell-fulfilled orders for free at more than 4,700 UPS locations, indicating a significant partnership for the two brands beyond last mile delivery.
    • Still, dismantling such a partnership is not impossible – FedEx notably cut ties with Amazon back in 2019.
  • A boon to the carrier’s peak season hiring (and overall execution) strategy, the Federal Motor Carrier Safety Administration (FMCSA) has approved a request by UPS seeking exemption from a commercial driver’s license (CDL) requirement.
    • The exemption allows the carrier to provide behind-the-wheel double trailer training to employees with a learner’s permit rather than a CDL. The exemption is unique to UPS and will remain active for five years.
  • Upcoming 3Q2022 earnings call: October 25, 2022.

GRI and Surcharges

  • Canada Post
    • Delivery Guarantee Modification: The carrier announced the following: “For items mailed between Monday, October 31, 2022, and Sunday, January 15, 2023, Canada Post will only honour delivery guarantee claims for late
      delivery if an item is delivered two or more business days after the delivery
      standard. This adjustment will apply to Priority, Xpresspost and Expedited
      Parcel services mailed within Canada.”
    • Oversize and Unpackaged Items and Out-of-spec Items: The carrier announced the following: “Between Monday, October 31, 2022, and Sunday, January 15, 2023, the surcharge for Oversize and Unpackaged items will increase to $25 from $18 and
      the surcharge for Out-of-spec items will increase to $400 from $300.”
  • DHL eCommerce
    • The carrier has published peak surcharges that are targeted to certain weights breaks and zones and which are applicable to most SmartMail Domestic products, all SmartMail Return products, First Class Parcels, Priority Mail, and all International products.
  • FedEx
    • The carrier announced the following, effective January 2, 2023: “FedEx Express package and freight standard list rates for U.S., U.S. export, and U.S. import services, and FedEx Ground standard list rates will increase an average of 6.9%.”  Many surcharge rates will be increased for 2023, including Additional Handling, Delivery Area Surcharge, Oversize Charge, and Residential Delivery.  The Late Payment Fee is increasing to 8%.
    • FedEx has put over 3,800 Delivery Area zip codes into a new category called “Remote,” which will cost $13.25 per package and is effective January 30, 2023.
  • LaserShip
    • From October 29, 2022 through January 13, 2023, LaserShip will have a Peak Residential Surcharge that is based on volume tiers.  The surcharge “will apply to all residential packages shipped during any weekly invoice period which exceeds 105% of the Shipper’s Weekly Average Minimum package volume in June 2022 (specifically, June 4, 2022 through and including July 1, 2022) (the “Baseline Volume”). Baseline Volume shall be determined by LaserShip in its sole discretion.”
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