Calculating the True Cost Increase of FedEx’s 2022 Rate Announcement
FedEx has announced its 2022 general rate increase (GRI) and it is the largest in eight years, coming in at 5.9%. In addition to the freight rates going up, there are additional increases for fuel and accessorials in its update that will drive the increase higher than the quoted 5.9%. Below, we will take you through the increases and explain what it will mean for shippers in 2022.
The Increases Explained
Freight Increases
The 5.9% increase is a bit deceiving as the lower-zone, lightweight shipments are increased at a higher rate than the rest of the zone and weight matrix. These lower-zone and lower-weight shipments are much more frequent shipments and thus the average net increase is higher than the posted 5.9%. For example, the average increase for ground shipments that are 1-5 pounds and zones 2-5 is 7.5%. Similarly for priority overnight shipments, the average increase for the same shipment profile is 7.1%. In addition to the gross rate increases starting January 17, FedEx will also be implementing a $1.00 per-package delivery and returns surcharge for shipments that are delivered or returned using FedEx ground economy. This could be extremely costly to those e-commerce shippers who have chosen ground economy for their returns program.
Fuel Increases
The 5.9% increase on freight rates will be what most people focus on, but FedEx has also adjusted the fuel scale to make fuel prices higher. Starting November 1, both Express and Ground shipments will receive a 1.75% increase to the current scale. On 9/10 Jet fuel was $1.91 per gallon, which is currently a 9% express fuel surcharge. Starting November 1, this would go to 10.75%, a 19% increase on the previous fuel surcharge amount. The ground fuel surcharge on highway diesel as of 9/10 was $3.38 per gallon, which translates to a 9.5% fuel surcharge on the current scale and will be moving to 11.25%, an 18% increase. Most large shippers have a discount on fuel, so they may not receive the full brunt of the increase, but total fuel costs will still increase, nonetheless.
Accessorial Increases
Included in the release of the new rates for 2022 was a change in how additional handling and oversize charges will be calculated. It is important to note FedEx will be announcing the rest of its accessorial increases later this year — these charges are almost always higher than the average freight rate increase (5.9%) and contractual rate caps rarely limit these accessorial increases. With that said, the major change for additional handling and oversize will be a shift from a flat charge to a charge based on zone. This will not only complicate calculating the cost of the shipment but will also increase the cost of these accessorials going forward.
What This Means for Shippers in 2022
Given all these increases, let’s walk through a few examples of what a shipment may cost in 2022 versus 2021:
No Rate Cap: In this example, the increase is significantly higher than the 5.9% expected due to the 4-pound zone 4 shipment gross rate increasing 7.5% and the increase in fuel scale, putting the true increase at 8%.
3% Rate Cap: In this example, the 3% rate cap limits the freight increase; however, due to the fuel scale increasing, the actual increase will be closer to 4%.
Additional Handling Shipment No Rate Cap: In this example, the freight rate increases the expected 6% and the fuel increase is the same as the above examples, but the additional handling increases 16%, which puts the overall increase at 11%.
Additional Handling Shipment 3% Rate Cap: In this final example, the 3% rate cap limits the freight increase, but the fuel and additional handling increases cause the total increase to be 9%, which is much higher than the 3% rate cap.
Key Takeaways
As your team begins budgeting for your small parcel spend in 2022, it is important to realize the increases can be much higher than your rate cap and/or the published increase by FedEx. Not only will you want to have a clear understanding of how these increases will affect you, but you will also want to consider ways to reduce shipping costs in the coming year. Insight Sourcing Group and its Logistics Center of Excellence can help shippers with both. If interested or for questions, please contact us here.