FedEx to raise express rates by 5.5 per cent

FedEx has announced a 5.5 per cent increase in its express shipping rates for next year to take account of record fuel prices and robust demand.

The bigger-than-average increase reflects continued strength in the package delivery services as global trade expands.

Analysts said United Parcel Service, the largest US parcel courier, is likely to follow with a similar rate rise in the next few weeks.

The increase will ease fears among investors that mounting competition between FedEx, UPS and their German rival DHL could weaken pricing.

For customers, however, the higher prices will add to upward pressure on supply chain costs, amid record fuel prices and transportation bottlenecks.

FedEx stressed that the 5.5 per cent increase would be offset by a 2 per cent reduction in the company’s variable fuel surcharge, resulting in an overall average increase of 3.5 per cent. By sharply increasing standard rates and reducing the fuel surcharge, FedEx is effectively locking higher fuel prices into its standard rates.

This signals that the company expects fuel prices to remain high for the foreseeable future.

In an interview with the FT, Fred Smith, chairman and chief executive of FedEx, said he expected fuel prices to ease back from their recent peaks as supply recovered following hurricanes Katrina and Ritaand new refining capacity gradually came online. But he said a sharp decline was unlikely.

Under the new pricing structure, FedEx has increased its base fuel price to Dollars 31 a barrel and will impose a surcharge on prices above that level.

The new rates, which come into effect on January 2, affect US express air deliveries. The company has not yet announced any changes to its ground rates or international prices.