FedEx Corporation (NYSE:FDX) announced that it is going to increase prices across all its services by an average of 4.9%. CNBC‘s Dominic Chu reported that the new prices are scheduled to take effect on 5th January 2015.
The reason for FedEx Corporation (NYSE:FDX)’s price hike was cited as inflation in the US economy. Like many other companies who have raised prices lately, FedEx Corporation (NYSE:FDX), does not want to bear the inflationary burdens itself. Instead they have chosen to pass these additional costs to consumers.
The price hike is expected to take effect in all of its three companies, that is to say FedEx Express, which offers fast time certain delivery within one to three business days; FedEx Ground, providing day certain deliveries to every address in US and Canada; and FedEx Freight which provides less-than-truckload freight services.
The only good thing about the news is the delayed application of the new rates. Since the price hike takes effect after the holiday season it wouldn’t be too much of a burden on Santa’s pocket, but for next year, perhaps he will have to fire some of the elves to make up for the extra cost.
As far as FedEx Corporation (NYSE:FDX) is concerned it will have to bear the brunt of reduced demand in light of its new price structure. How much of this impact will be felt by the Company’s bottom line will be revealed by the earnings report of next year’s first quarter.
Moreover, the news could also be the precursor of similar price rises from other companies like United Parcel Service, Inc. (NYSE:UPS) which is also a package delivery service. However, it is also an opportunity for UPS to attract FedEx customers who are looking for a better bargain. For that the company will have to find a way to cut the margins and bear all the inflationary burden itself.
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