Truth be told, it should come as no real surprise that FedEx (FDX) is about to make a considerable change to the way it charges for ground shipping of larger packages.
When ground delivery first debuted and e-commerce was still relatively uncommon, the size and shape of shipped packages were relatively irrelevant in terms of the cost to operate a delivery truck. As Amazon (AMZN) and other e-tailing has proliferated and spurred huge demand for delivery services, though, ground-delivery trucks from FDX as well as UPS (UPS) are increasingly full.
Now, space — not weight — is money.
To nip a small problem in the bud before it became a big problem for the value of FedEx stock, the delivery company will now measure the dimensions of a box in addition to weighing it to determine the price it charges to ship that parcel.
Anything roughly the size of a breadbox or bigger could cost anywhere from 8% to as much as 37% more, according to data compiled by the Wall Street Journal. Counterintuitively, it’s the lighter items like diapers and toilet paper that will see the biggest bump in shipping costs.
Industry experts believe this new pricing paradigm will only impact about a third of the packages FDX currently ships by ground, with no changes planned for its air freight rates. Ergo, the impact on FedEx stock should theoretically be minimal.
The matter isn’t as simple for everyone else involved.
Impact of the FedEx Price Hike on Amazon
Only one company drives a big chunk of that third of FedEx’s ground-shipping business: Amazon, which really doesn’t need a rate hike right now.
However, it’s possible the impact might be less than feared. See, although FedEx Ground’s shipping price schedule is public information freely available to anyone who looks for it, that may or may not be the price that Amazon pays. Because it’s such a big customer, AMZN enjoys lower freight rates than smaller shippers or consumers would pay. While Amazon’s cost certainly will be higher than it is now, those rates still should be lower than the new price schedule would suggest.
Simultaneously, Amazon might find a way on its own to minimize the shipping price hike.
While it’s been the butt of many jokes, the packaging decisions made in some of Amazon’s fulfillment centers are no laughing matter. For instance, AMZN has packed a small, consumer electronics battery in a box big enough to hold a bed pillow. That’s insane, and costly for companies like FedEx that currently only charge by weight.
But now, with real money on the line, odds are good that Amazon stock owners will finally demand a revamp of its packing procedures rather than simply giving the idea lip service.
That being said, shipping expenses are one of the company’s fastest-growing costs, and it’s still not clear whether the value of Amazon stock will survive another round of shipping-cost increases without slipping into the red.
The Impact on Everyone Else
As for smaller retailers that need to ship but don’t have the leverage of size that Amazon enjoys, life will become even more difficult.