It costs a lot of money to send products from one place to another.
These costs add up, especially when you run a business that relies on delivery to get your products to people.
It looks like the costs may be going up, especially if you use FedEx.
FedEx recently announced that it will add a fuel surcharge to many delivery orders starting November 1, 2021 and increase shipping rates starting January 3, 2022 (box prices will remain the same).
Why would FedEx increase prices now, especially since they already charge more than their competitors?
And why will people go with them if they cost more?
Here are the top 10 reasons FedEx is so expensive.
1. Fuel Surcharge Increase
Gas costs money, and the price goes up and down based on current market prices, availability, and international agreements.
Despite your political leanings, gas prices have undeniably increased over the last couple of years.
In September of 2021, the average price of gas in the United States was $3.175 per gallon.
In January of 2019, gas cost $2.245.
We all feel the effects of high gas prices when we go to fill up at the local gas station.
However, the industry that gets hit the most is the transportation industry, including FedEx.
The trucks that FedEx uses to transport goods run on gas.
With gas prices on the rise, it greatly increases the cost of business to transport items.
That’s why FedEx decided to add a surcharge based on the distance required to transport a particular item.
See the following to learn the updated FedEx Ground surcharge based on diesel fuel price:
- $2.83 to $2.92: 9.75%
- S2.93 to $3.01: 10%
- $3.02 to $3.10: 10.25%
- $3.11 to $3.19: 10.50%
- $3.20 to $3.28: 10.75%
- $3.28 to $3.37: 11.00%
- $3.37 to $3.46: 11.25%
- $3.46 to $3.55: 11.50%
- $3.55 to $3.64: 11.75%
- $3.64 to $3.73: 12.00%
- $3.73 to $3.82: 12.25%
- $3.82 to $3.91: 12.50%
- $3.91 to $4.00: 12.75%
See the following for the updated FedEx Freight fuel charge based on EIA fuel Index:
- 330 – 27.30%
- 331 – 27.40%
- 332 – 27.40%
- 333 – 27.50%
- 334 – 27.50%
- 335 – 27.60%
- 336 – 27.60%
- 337 – 27.70%
- 338 – 27.70%
- 339 – 27.80%
- 340 – 27.80%
- 341 – 27.90%
- 342 – 27.90%
- 343 – 28.00%
- 344 – 28.00%
- 345 – 28.10%
- 346 – 28.10%
- 347 – 28.20%
- 348 – 28.20%
- 349 – 28.30%
These slight increases won’t take delivery fees out of the range of feasibility.
However, it can be beneficial to adjust your budget accordingly.
2. Best Record On Overnight Delivery
People want their packages delivered to them, and they want those packages NOW.
With FedEx, you can rest assured you went with the quickest delivery service available.
Not only does FedEx prioritize getting to the customer as quickly as possible, but they also offer a wide number of options to allow for optimal communication between FedEx and the customer.
FedEx offers three overnight domestic shipping options so that you get the package at the time you need it:
- FedEx First Overnight: next morning
- FedEx Priority Overnight: next day by midday
- FedEx Standard Overnight: next day
When you need something for a next-day morning meeting, you will opt for FedEx First Overnight.
However, if you don’t need it until after work, you can select FedEx Standard Overnight.
FedEx also has the best rate when it comes to getting packages delivered according to the time they tell you the package will arrive.
FedEx also delivers packages on Saturday (and Sunday in certain areas), which is not something all of their competitors do.
They will even deliver on most holidays except for Thanksgiving Day, Christmas Day, and New Year’s Day.
If you don’t need delivery quite so fast, you have more options.
FedEx Ground Delivery delivers packages in one to five days in the Continental United States and three to seven days in Alaska and Hawaii.
In general, packages arrive between 8:30 a.m. to 5:00 p.m.
However, with FedEx Ground Home Delivery as late as 8:00 p.m.
Naturally, it costs more to pay people to work on weekends and late into the night.
3. Market Instability
FedEx recently characterized the current economy as “a challenging operating environment” when describing why they felt the need to increase prices.
It seems there may be data to support the idea that we’ve been living in an insatiable economy lately, in part due to the recent pandemic.
The Covid-19 pandemic hit the world in 2020, essentially putting the economy at a standstill.
People and businesses looked for ways to minimize exposure to the virus by increasing safety procedures and maintaining social distance.
Social distance often meant people working from home and requesting contact-free delivery for essentials instead of going to the store.
Shipping demand increased greatly as people stayed home more.
While FedEx did experience a boost in business, sudden demands to increase safety created substantial unexpected expenses.
In fact, FedEx recorded a $125 million charge for personal protective equipment in 2020.
While undoubtedly a necessary expense, the company’s higher prices went to cover these increased expenses that helped keep things stable in times of hardship.
Soon, the demand went back down to just slightly above average, while the increased expenses remained.
Two of the main problems FedEx will experience in the near future include the higher cost of labor and supply chain restrictions.
“While we expect these conditions to continue near term, we expect a gradual improvement in labor availability combined with our proactive revenue management actions to mitigate the ongoing impact of these headwinds on our results and position us for earnings growth in fiscal 2022,” said FedEx CFO Michael Lenz.
While somewhat unstable over the last two years, FedEx stock remains at a “buy”.
4. International Shipping Difficulties
We come across international travel every day with the items we purchase.
While it’s great to buy American, we also need international trade to establish relationships with other countries and contribute to both economies.
However, it’s not always as easy to move items from one country to another as you might think, especially after a global pandemic.
International shipping rates are at an all-time high.
When shipping internationally, the two most popular options are to transport by sea and by plane.
According to Time Magazine, it costs over $10,000 to transport a 40-foot steel container from Shanghai, China, to Rotterdam, Netherlands, by boat.
If that’s high, that’s because it is.
In fact, it’s 547% higher than the five-year average for the season.
Unfortunately, this trend shows that shipping costs from China may be especially higher, possibly in part thanks to an unfair association of the country with the Covid-19 Virus.
While the example mentioned showcases a particularly noticeable increase, other countries have also seen higher than normal shipping costs.
Just not quite egregious.
Nonetheless, FedEx understands that they need to do what they can to support international travel.
That’s why FedEx air cargo owns 670 airplanes, the largest air cargo fleet in the world.
5. Competitors Are Also Increasing Prices
FedEx isn’t the only delivery company that sees the need to increase prices.
The United States Postal Service (USPS) put in a request to increase prices during the busy holiday season to help ensure that they see a profit.
UPS also added a fuel surcharge that went into effect on August 12, 2021.
In general, the USPS tends to offer the lowest rates with UPS and FedEx often very comparable.
FedEx maintains the larger air fleet while UPS commands the larger ground fleet.
In many cases, FedEx will transport items via air to the nearest distribution center then partner with USPS to have them handle the final delivery.
See the following price comparisons between FedEx and UPS for different delivery services of a three-pound package from California to New York on Monday.
- FedEx Ground (three to six working days): n/a
- FedEx Express Saver (Thurs by 4:30 p.m.): $31.52
- FedEx 2-Day (Wed by 4:30 p.m.): $38.86
- FedEx 2-Day AM (Wed by 10:30 a.m.): $44.51
- FedEx Standard Overnight (Tues by 3:00 p.m.): $80.26
- FedEx Priority Overnight (Tues by 10:30 a.m.): $88.18
- FedEx First Overnight (Tues by 8:00 a.m.): $120.27
- UP Ground (next Monday by the end of the day): $15.41
- UPS 3-Day Select (Thurs by the end of the day): $32.03
- UPS 2nd Day Air (Wed by the end of the day): $39.52
- UPS 2nd Day Air AM (Wed by 10:30 a.m.): $45.25
- UPS Next Day Air Saver (Tues by 3:00 p.m.): $81.61
- UPS Next Day Air (Tues by 10:30 a.m.): $89.64
- UPS Next Day Air Early (Tues by 8:00 a.m.): $121.22
As you can see, FedEx offers a slightly cheaper option in almost all areas.
That makes FedEx the top option for domestic travel within the continental United States when the package must travel by air.
6. Excellent Tracking Features
Sometimes, you need to know exactly where your item is and when it will arrive.
You may even need to change some of the details of your order mid-delivery at times.
In most cases, trying to change information while a package is already in transit can be a nightmare.
Tracking a package can also be disappointingly undetailed with other companies.
FedEx offers the best tracking and management abilities available with their tracking system FedEx InSight.
Some of the features available with FedEx Insight include:
- Inbound views
- Outbound views
- Third-party views and invitations
- Customizable preferences
- Automatic notifications
Not only do you get more features than other companies, but FedEx also worked to make their tracking system as user-friendly as possible with an easy-to-navigate interface and advanced search features.
It makes sense that FedEx has one of the best tracking features around since they actually invented the tracking number.
The tracking number is the number used to track the exact location of a package.
FedEx invented it in the late 1970s for internal purposes but soon allowed customers to access certain information using the tracking number as well.
Using tracking numbers became a standout feature that now all competition uses.
Today, FedEx receives over 125 million tracking requests every single day.
(Maybe you only made 20 of these requests on the day your new Air Fryer arrived.)
7. Workforce Support
FedEx employs more than 500,000 and spends $25 billion a year in salary.
FedEx acknowledged that the pandemic affected many people, even if they still had a job.
Many people put themselves at risk to go to work every day.
Furthermore, many people took on the weight of a home’s financial responsibility by themselves.
To do their part, FedEx provided employees with a 2% raise increase that took effect in October of 2020.
They also gave bonuses to select executives who went above and beyond to keep things afloat during a difficult time.
Unfortunately, they had to let some people, however, and forgo many executive benefits.
FedEx has a history of providing small but meaningful raises, also implemented a 2% cost of living raise in 2019.
FedEx has proudly paid almost $2 billion in taxes in the last 10 years (as of May 2021).
They have also paid $1 billion in foreign taxes.
FedEx makes a point to keep information transparent, adding to its credibility.
Everyone agrees that corporations need to pay taxes.
The only real debate is how much.
Those taxes may soon go up by 5.5%, though.
The current administration proposed an increased corporate income tax rate of 26.5%.
This litigation also proposes that corporations that have capital gains of 25% or higher receive an additional 5% surcharge.
This puts FedEx at risk since they have come close to reaching capital gains of 25% a couple of times and even exceeded it once.
FedEx’s income tax rates for the last five fiscal years:
- 2021: 21.6%
- 2020: 23%
- 2019: 17.6%
- 2018: 5%
- 2017: 34.6%
It’s important to note that the proposed litigation has not yet become law.
For more information on what happens next, see one of our favorite videos from elementary school (and, no matter what your political leanings are, vote): Schoolhouse Rock – I’m Just A Bill
9. High Corporate Demand
A large portion of FedEx’s business comes from corporations that use FedEx to deliver their products.
Amazon alone makes up 1.2% of FedEx’s business.
Ecommerce corporations depend on dependable delivery services to keep customers happy.
In fact, 38% of consumers in a recent study indicate that they will not want to buy from a retailer again if they did not have a good delivery experience.
That’s why many of the best online retailers use FedEx thanks to their record of success.
Online retail sales account for $908.73 billion in revenue in the United States in 2021 with projected growth of 13.7%.
In order to accommodate the needs of businesses and their customers, FedEx must charge an appropriate price.
However, they offer numerous ways for eCommerce companies to save so that they can keep shipping costs down and compete with their rivals.
When you create a business account, you automatically get numerous benefits and discounts on shipping costs.
After you create an account, you can get access to even more advantages with their rewards program.
My FedEx Rewards allows you to earn rewards when you make qualifying shipments through FedEx, including FedEx Home Delivery.
You can even earn a $10 gift certificate for signing up!
Not sure the best plan for your business?
An eCommerce specialist can go over your options with you so that you pick the most efficient option for your needs and understand all charges so that you don’t experience any surprises.
FedEx also makes things easy for your customers.
They have made the software simple to use.
They also make it easy for recipients to return things.
When customers have a great experience returning a product, 95% say that they will do business with the company again.
10. Philanthropic Efforts
When pondering the cost of a service, it’s important to consider the company’s contribution to the community.
As consumers, we have the power to make decisions when we make purchases.
We can and should buy from companies that do their part compared to companies that do less than expected.
FedEx regularly makes contributions to communal efforts.
In fact, FedEx established FedEx Cares, which has a well-publicized goal to help 50 million people by their 50th anniversary in 2023.
FedEx is an international company, so they support philanthropic efforts in countries outside of the United States as well.
Here are some of the organizations FedEx supports abroad through EMA:
- United Kingdom
- Action For Children
- United Way Tocqueville
- Foundation de France
- Papa Charlie
- United Fund of Belgium
- Queen Fabiola Children’s University Hospital
- SOS Kinderdorf
- Action Medeor
- Sozialheiden e.V
- Make a Wish Foundation
- Habitat for Humanity
- L’Albero della Vita Foundation
There’s a reason you pay the prices you do when you opt to use FedEx as your shipping provider.
FedEx provides numerous benefits over the competition, most noticeably fast shipping.
With other delivery companies increasing prices as well, the competition is getting tighter (and more in favor of FedEx).
FedEx must also adjust prices as they provide cost-of-living pay increases for employees and make contributions to charitable causes.