While FedEx has announced that they plan to increase their average shipping rates next year, by a substantial 4.9 – 5.9% depending on the service, this move shouldn’t be seen as simply a bullish indicator for the economy.
Primarily FedEx needs to bolster its margins right now, which are down from where they historically have been. Operating margins were just 12.9% in fiscal year 2008 and 11.1% is the fiscal year 2009 according to Value Line. This is far lower than the 13.2% – 14.5% operating margins FedEx achieved during fiscal years 2004 – 2007.
Price hikes are always based on a consideration of many factors such as revenue growth objectives and the strength of the economic environment. Yet this time around, while FedEx has said they see further economic recovery in 2010, they are probably more focused on the fact that they need to shore up margins.
FedEx: will increase the standard list rates for FedEx Ground and FedEx Home Delivery by an average of 4.9 per cent. FedEx SmartPost rates also will change. The new rates will be effective Jan. 4, 2010. FedEx Corp. previously announced that it would increase shipping rates for FedEx Express by an average of 5.9 per cent for U.S. domestic and U.S. export services also effective Jan. 4, 2010.