Following the reveal of its poor fiscal performance earlier in the year, FedEx announced it would raise shipping costs by approximately 6% in order to increase its overall revenue and put the company in a better place financially.
If Americans weren’t financially crunched enough, a new increase in shipping costs would require FedEx users to pay exponentially more. In a recent statement, the company said that Express, Ground, and Home Delivery rates would go up by an average of 6%. FedEx likely raised delivery rates due to its abysmal fiscal quarter at the beginning of 2022.
After this announcement, FedEx shares closed higher than expected, accidentally released before the market closed. A spokesperson stated that the premature reveal was a technology issue and was not intentional. Still, the latest earnings announcement could place FedEx in a better financial place than in the first months of this year.
CEO Raj Subramaniam made a statement about the shipping company’s complex fiscal year, noting a harsh macroeconomic environment and inflation as key reasons for its revenue deficit. A week before FedEx’s shipping cost announcement, the company released its earnings report, which fell far beneath Wall Street’s expectations. This led to the company slashing its 2022 outlook while withdrawing its guidance.
Due to a tough financial year, FedEx will raise its shipping costs for most of its services. While more standard shipping practices will be presented by about 6%, FedEx Freight rates could increase up to 8% by the end of the year. The company is also working on cutting its budget and general costs by closing underused locations, suspending Sunday operations, and reducing plane deliveries.
FedEx Ground expects to save $350 million and $500 million by implementing new shipping costs and reformatting its budget. The company also stated that it could make $350 million to $500 million more by decreasing vendor use and closing office locations that weren’t being utilized. Subramaniam noted that the company is moving quickly to alleviate financial burdens by saving money for a more prosperous fiscal outcome.
FedEx expects to save billions of dollars next year by overhauling its budget. In 2023, analysts expect the company to save over $2 billion, ultimately helping its stock market value and retain its key investors. Despite having financial troubles this year, the company stands by its 2025 projections which forecast its market growth.
With higher shipping costs, FedEx could rectify its abysmal sales year. The company made an ambitious financial forecast in June, believing it would receive annual revenue growth between 4% and 6% until 2025. Despite FedEx’s unfortunate past earnings reports, earnings per share are also expected to grow between 14% and 19%.
Though FedEx may save money from this financial strategy, customers have been backed into a corner with rising gas, housing, and food costs. The general rate increases the company is implementing is the highest year-by-year increase in FedEx history, placing more financial burdens on its struggling consumer base. Though FedEx’s shipping cost escalation is to reconcile with high inflation rates, customers might be deterred from paying for their exponentially larger shipping prices.
Even when they serve essential purposes, companies of all industries are struggling with steady revenue decline. Though FedEx’s stock shares recently closed at a higher price than in the past 2022 months, the company has a long way to go to regain its profitability.