While the escalating costs of sending goods across the ocean have created headlines, continued rate hikes and fees from FedEx and UPS are more quietly continuing to increase the cost of last-mile delivery.

FedEx on Sept. 20 said it plans to increase shipping rates an average of 5.9%, effective at the start of 2022. The rate hike marked the first time in eight years that FedEx or UPS has strayed above annual increases of 4.9%.

The jump reflects inflationary pressures and the carrier’s pricing power. “The continued constrained capacity in both the U.S. domestic and international markets has led to a very favourable pricing environment,” said Brie Carere, EVP, FedEx’s chief marketing and communications officer, on a quarterly call.

UPS is expected to announce a similar 2022 rate increase shortly as the two carriers have mimicked each other’s pricing moves for at least a decade. FedEx and UPS have been regularly adding surcharges and other fees as online delivery has remained elevated since the start of the pandemic. Both recently announced surcharges through the upcoming holiday season due to expected continued strains on capacity.

FedEx and UPS are prioritizing more profitable shipments from small- and medium-size businesses. Larger e-commerce shippers that have historically won bigger shipping discounts are seeing their rates rise as carriers look to both increase revenue as well as free up capacity.

A Wall Street Journal article noted that some e-commerce players are using fees to offset rising costs. Fanatics is charging a $1.99 handling fee to cover warehousing and packaging costs.

Some shipments are being diverted to regional carriers, though capacity is limited. Some can be shifted to the U.S. Postal Service (USPS) although the agency is also steadily raising rates and just announced plans to slow deliveries. The Journal article said eliminating free shipping offers may be on the table given the cost pressures. “It’s a real dilemma,” John Haber, a president of parcel consulting at Transportation Insight, told the WSJ, “because you have to compete with Amazon and Amazon is not going to stop offering free shipping.”

Source: Retail Wire