Most recent FedEx pricing surcharges feel permanent

This is an excerpt from Thursday’s Point of Sale retail supply chain newsletter.

FedEx announced Friday it will implement a new peak surcharge on Express and domestic residential Ground shipments, as it continues to deal with “elevated volume” due to the pandemic. 

The surcharge will impact shippers that had a weekly average volume of more than 30,000 packages between Jan. 4 and Jan. 31. The fee will take effect Feb. 15 and apply until further notice, the carrier said. 

Shippers who fall into this category will be charged an additional 30 cents per Express and Ground residential package. SmartPost and One Rate packages in the Ground network are excluded from the new fee, according to a rate update. FedEx announced indefinite SmartPost peak surcharges of 75 cents per package beginning Jan. 18 in December. 

Dean Maciuba, a managing partner at Last Mile Experts, said in a LinkedIn post on Jan. 15 that it makes sense from FedEx’s perspective that the new fees target larger customers.

“FedEx assumes that these large customers will accept the price increases and just pass on the added cost to their customers,” Maciuba wrote. “However, it is difficult for large e-commerce merchants to pass on the rate increase to the consumer, without compromising the free shipping component of the e-commerce value proposition.”

Many think free shipping is the cornerstone of e-commerce. “Those who think the growth in e-commerce has come because of technology or seeing better information about the product they are buying, I would challenge them that they are 100% wrong. The growth in e-commerce has come from a very simple marketing concept: free shipping”, said an emphatic Satish Jindel in our recent interview. 

But while retailers have rolled out new fulfillment options like BOPIS, curbside pickup or rapid delivery via third-party courier, many have also been drawing down their free shipping and returns policies. A Gartner analysis from December of 500 leading retailers found there has been a 12.5% decline in the number of retailers offering free shipping and a 30.3% reduction in those offering free shipping on returns between late 2019 and August 2020.

Retailers with physical footprints have been able to leverage new modes of fulfillment to pass increased costs associated with online delivery to consumers and their suppliers. But for digitally-native brands without access to physical stores, this could be painful should it become the new normal. If you ask FedEx, it already has. 

At the end of June, FedEx warned that peak surcharges would be “the new normal,” as it didn’t expect e-commerce volume to slow any time soon. And FedEx has lived up to this suggestion, increasing peak surcharges multiple times in the months since that earnings call. 

“We believe surcharges will be a part of our pricing strategy moving forward for e-commerce,” FedEx Chief Marketing and Communications Officer Brie Carere said. “They are a necessary part.”

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