It seems like every time you check the news these days, there’s a story about how life is getting more expensive. Whether it’s fuel, consumer goods, or rent, it seems like nothing has been spared from price hikes.
Shipping is yet another service that has become more costly. There are many reasons for this. In this article, we’ll look at 11 reasons why shipping with FedEx has become more expensive, so keep reading to learn more!
Why Is FedEx So Expensive In 2022?
One reason FedEx is expensive is due to its fees. Some of these include the fuel surcharge fee, the holiday fee, and the oversize item fee in 2022. On top of these standard fees, FedEx announced a 5.9% price hike in 2022 on Ground shipments. Shipping prices have also increased due to supply chain issues and increased operating costs.
If you’re looking for even more details about why FedEx is so expensive, you’re in the right place, so keep reading for more useful facts!
1. Fuel Surcharge Increase
It goes without saying that most of FedEx’s delivery services require gas.
Whether deliveries are made using trucks or airplanes, fuel is the common denominator keeping the FedEx network running.
With gas prices on the rise due to supply chain issues and political instability, the cost of transportation becomes more expensive for businesses like FedEx.
Indeed, in April 2020, gas cost $1.938 per gallon on average. Currently, the average price per gallon is $4.192 per gallon. That represents a 46% increase in only two years.
Given these massive increases in fuel prices, FedEx decided to increase its fuel surcharge on all shipments.
This charge is based on the distance required to transport a particular item and the price per gallon for diesel fuel.
While FedEx’s domestic fuel surcharge is usually about 16.25%, this percentage is estimated to increase to 18% as long as gas prices remain high.
2. Overnight and Weekend Delivery Options
FedEx offers several overnight delivery options including FedEx First Overnight, FedEx Priority Overnight, and FedEx Standard Overnight.
In addition, it’s common to see FedEx delivery drivers out until 8:00 PM as part of the Ground Home Delivery Program.
What’s more, the company also delivers packages on Saturdays and Sundays in many areas, something many of FedEx’s competitors don’t do.
Given the cost of staffing drivers late into the night and on weekends, it makes sense that FedEx’s prices are higher than its competitors.
3. A Tough Operating Environment
During the COVID-19 pandemic, FedEx was required to invest a lot of money in personal protective equipment and barrier methods to keep employees and customers safe.
In fact, FedEx reported spending $125 million on personal protective equipment in 2020.
While these expenses are necessary, the company was forced to increase costs in order to cover the extra expenditures.
4. Supply Chain Delays
Chinese cities remain on lockdown in 2022 and ports all over the world are backed up. Together, these factors mean that supply chain issues are compounding.
To put it simply, when merchandise isn’t moving, then no one is making money.
As a result, costs go up. These price increases trickle down to shipping companies and then customers, resulting in higher prices.
5. High Prices for International Shipping
International shipping costs have been on the rise since 2020 due to soaring demand, a shortage of containers, saturated ports, and too few ships and dock workers.
Add to that lockdowns in several Chinese cities (where many consumer goods originate from) and the result is massive increases in transportation costs.
Indeed, it now costs more than $10,000 to transport a 40-foot steel container from China to Europe. That’s 547% higher than the five-year average.
Just like with rising fuel prices and supply chain delays, FedEx passes international shipping costs down to consumers.
6. Add-on Services
When shipping with FedEx, there’s the base price required to cover shipping costs, but the shipping company also proposes additional services for a fee.
Some of these services include signature delivery, Delivery Manager, and insurance.
Depending on how many of these services you add to your shipment, you could end up spending significantly more than the base price you were quoted.
7. Soaring Customer Demand
With a record number of people working from home, the demand for eCommerce has increased significantly. In fact, the industry experienced a 19% sales growth in 2020 alone.
While rising demand is good news for retailers, it’s a massive headache for shipping companies like FedEx.
Indeed, FedEx has been struggling to keep up with its shipping volume for years now.
One way the company has dealt with these challenges is by increasing prices.
Such increases are intended to support updates to the FedEx network so that the company can continue to provide a high level of service to its customers.
8. Salary Increases
FedEx has a history of providing small but meaningful seniority raises, as well as cost-of-living raises (around 2%).
However, since the start of the COVID-19 pandemic, FedEx has been forced to raise starting wages across the board by about 2% to entice new recruits.
To that, FedEx added annual merit increases and $100 bonuses for employees that provide referrals.
Raising consumer prices is one of the main ways FedEx has funded these raises.
9. Fees and Surcharges
In addition to fuel surcharges, FedEx has a number of additional fees it passes on to consumers.
Some of these fees and surcharges include:
- Additional Handling Surcharge and Oversize Charge
- Delivery and Returns Surcharge
- No Shipment Tendered Surcharge
- International Out-of-Delivery-Area surcharge
10. Holiday Fees
In addition to its standard fees and surcharges, FedEx also imposes holiday fees to counteract the massive increase in demand during this season.
These surcharges are placed on eCommerce merchants who either have to absorb the costs or pass them on to customers.
This season starts on November 1, with a $1.50-per-piece increase on Ground Economy deliveries.
It applies to outbound residential deliveries for small- and medium-sized businesses and covers low-weight, low-value, non-urgent deliveries. Essentially, the majority of consumer packages.
This initial surcharge expires at the end of November but is replaced by a $3-per-package fee that stays in place until mid-December to compensate for Black Friday and Cyber Monday purchases.
It then returns to $1.50 from mid-December to January 16 to deal with Christmas traffic.
As you can see, these charges are pretty hefty, so if you’re wondering why FedEx seems more expensive at the end of the year, that’s why.
11. Rate Hikes
Last, but not least, FedEx is so expensive because of rate hikes. Indeed, in 2022, FedEx announced a 5.9% price increase on Ground services.
According to a FedEx spokesperson, this increase reflects the rising cost of doing business in a difficult operating environment.
Increasing costs allows FedEx to keep investing in itself and continue delivering top-notch shipping solutions and the excellent service customers expect.
Fees, a challenging operating environment, and rising prices in all industries are just some of the reasons why FedEx is so expensive.
As a consumer, it can be difficult to accept paying more for the same service, but knowing that FedEx is investing in its workforce and infrastructure may make higher costs more palatable.