FedEx to raise shipping rates

The company cites higher fuel costs for the 'pricing adjustment.'

By InvestorPlace Sep 30, 2010 10:32AM

airline Travel © Digital Vision / Getty ImagesIf your business relies on FedEx for shipping its products, this might not come as the best news. FedEx (FDX) announced Wednesday that it will raise prices by an average of 3.9% starting Jan. 3. 


The world's largest air-cargo carrier says the hike is an attempt to compensate for the rising cost of fuel. FedEx apparently spent $887 million on fuel last year, an increase of 33% over the year before.


"This pricing adjustment will allow for key investments that will enable FedEx to continue to provide industry leading service and shipping solutions," said FedEx vice president T. Michael Glen.

While the price increase may disgruntle customers, it comes as FedEx's business is quite strong. On Sept. 16, the company reported earnings of $1.20 per share, or $380 million. That was an increase from EPS of 58 cents a year ago. Post continues after video:

Over the past 12 months, FDX stock has gained 16.9%. And although FedEx missed earnings estimates by a cent last quarter, it had outperformed earnings estimates the three previous quarters. 

FedEx's price increase will happen more than a year after competitor UPS (UPS) raised its shipping fees by a sharp 4.9%. Despite the price hike, UPS stock has flourished in 2010, gaining 18.1% since January. UPS has also outperformed earning estimates for four straight quarters.

Investors watch FedEx and UPS closely because higher shipping volume generally bodes well for the economy. As more packages are mailed, it's safe to assume that more people are buying and selling goods. But despite what looks like improvement over last year by many accounts, FedEx appears to still be struggling -- and passing its expenses on to consumers.

FedEx customers may not be the only ones upset with the company. In a statement, the company said it will lay off approximately 1,700 employees after FedEx Freight and FedEx National LTL are combined. 

It seems FedEx stock will likely be unaffected by the increase in shipping rates. If UPS' 2010 performance is any indication, consumers will ship their products regardless of the cost. With many business relying on FedEx and UPS for delivering their products, they may have no other choice but to endure the price boosts.

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