Global logistics giant FedEx recently announced lower-than-expected results for its first quarter of the 2023 fiscal year (June 1 to August 31). On September 22, the company announced plans to increase 2023 freight rates in response to slowing global express delivery business. The General Rate Increase (GRI) will be raised by 6.9%, the largest year-on-year increase in the company’s history.
FedEx Express, FedEx Ground, and FedEx Home Delivery services will all have their rates increased by an average of 6.9% starting January 2, 2023. FedEx Freight’s rate increase will be between 6.9% and 7.9%, depending on customer freight tables.
Normally, FedEx’s annual freight rate increase is between 4.9% and 5.9%. Analysts predict that the GRI for 2023 will increase by 6% or more to offset the impact of cost inflation.
To some extent, the GRI, which applies to non-contract transport, is symbolic because almost all package deliveries are based on contracts. However, the level of growth in contract rates and discounts obtained from these increases are tied to the actions taken by carriers on their GRIs. Therefore, the GRI is a key barometer for shippers to anticipate expected shipping costs and discounts in contracts.
FedEx announced plans to save $2.2 billion to $2.7 billion in costs by cutting FedEx Express air and international business units and FedEx Ground’s US transportation department in the current fiscal year, while increasing the GRI. The company plans to reduce the number of flights for FedEx Express and temporarily park a number of aircraft with an undetermined number. These measures are expected to save $1.5 billion to $1.7 billion.
FedEx Ground will save $300 million to $500 million by closing some sorting operations and suspending some Sunday delivery operations, but will not shut down almost all expensive Sunday delivery networks as some have suggested.
In addition, FedEx plans to cut costs by $4 billion by the 2025 fiscal year (starting June 1, 2024). The company says it will stick to plans announced at the end of June to restructure its network and end siloed operations between its three business units.
According to FedEx’s financial results, FedEx Express’ operating revenue declined by 69% year-on-year. FedEx attributed the significant decline to sudden weakness in cross-Pacific air freight volumes in the last few weeks of the quarter. The company said that cost indicators lagged behind the decline in freight volume, and operating expenses were still high relative to demand.
This shocking performance surprised everyone and caused FedEx’s stock price to drop more than $40 in Friday’s trading.