FedEx to Raise Prices as Online Shopping Increases

FedEx

Shipping in the modern age has become an integral part of people’s lives. From the small business owners selling goods online to the casual shopper looking for that perfect little something, revamping of the shipping industry may be affecting the consumer. With increased online shopping, even Amazon is trying to break into the game, making for more competition. Even so, FedEx is preparing to raise prices soon.

Since the creation of the Internet, it has been hard to understand how technology impacts lives. No more can the impact be seen than in the world of shipping. With companies like Amazon, Ebay and Overstock.com, online shopping has become a standard of daily life. From clothing to electronics, people have decided to find their goods online. The convenience and availability of stock online allows people to find exactly what they are looking for from the comfort of their own home. The breakthrough of store-to-door shopping has become such a trend that many large retailers are offering online shopping features and delivery options.

With this shift in consumer behavior, shipping companies carry an increased burden transporting the world economy. GuruFocus.com’s 15-year financial tracking of FedEx shows a gradual incline in stock prices. In November 2006, FedEx stock prices were just over $109 per share, and aside from the dip during the last financial crisis, its stock has been steadily climbing to over $175 per share in February 2016. As people have become more and more comfortable using the Internet as their marketplace, these companies have seen growth on a level they could not predict.

This shift in the market is requiring some serious renovations in company infrastructure. Carrier services had traditional methods of delivering small parcels and letters to and from place to place with relative ease. Now, with a monumental increase in the number of packages being shipped, increasing size of the packages, and the increase in delivery routes, these companies have decided to meet the needs of the new marketplace at the customer’s expense.

Mike Glenn, CEO of FedEx Services, when asked about concerns over whether or not Amazon was a competitor, hinted to the size and scale of the shipping company’s operation. When speaking about Amazon building a network to rival theirs, he stated, “The reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like [ours].” This would reflect Amazon building on what carrier services already have in place without having to raise prices, as FedEx plans to do in order to meet the demands of increased online shopping.

FedEx CFO Alan Graf said that building the necessary networks was costly and it was time e-commerce shipping prices reflected that fact. With millions of people shopping online and the millions of packages being shipped, shipping companies are having to reshape their businesses. In order to do this, FedEx is proposing to raise the cost of shipping.

But some believe this cost adjustment might place an undue pressure on small businesses. While most giant companies, like Amazon and Overstock.com, can afford a slight increase in shipping prices, Angela Gianfrancesco, owner of Chicago-based Stella Blue Design, warns that this will impact the way she runs her business.

FedEx has decided that raising prices has to be done in order to meet the needs of increased online shopping. While no one likes paying more for what they are already getting, FedEx’s job to service their customers’ needs will require an additional expense.

By Harrison Baker

Sources:

Forbes: FedEx Hints At Increasing Shipping Rates… Impacting Retailers And Customers Alike
Yahoo Finance: FedEx: Retailers Should Be Paying More For Web Delivery
Fortune: FedEx is Not Afraid of Amazon’s Delivery Ambitions

Image Courtesy of Simone Carletti’s Flickr Page – Creative Commons License

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