They’ll either (1) charge more for merchandise to offset higher costs, (2) raise shipping costs for customers and risk losing business, or (3) brace for a combination of choices 1 and 2.
One effort that all retailers are expected to make is pushing for more items in an order to stuff the box full. And in some cases, it’s possible that retailers will no longer ship certain items if doing so leads to a loss.
Whatever the impact, there’s no way retailers that ship goods to customers are going to not feel a tighter pinch now.
Of course, FedEx’s higher shipping rates will impact its competitors as well … namely, UPS.
Industry analysts are relatively certain UPS will increase its shipping rates, following FedEx’s lead. It might not match the rate hike dollar-for-dollar. Indeed, it would be unwise to do so, as becoming the more cost-effective alternative should lead to more volume and scale for UPS and prove to be a boon for the price of UPS stock.
But history and logic do suggest UPS will announce a rate hike of its own in the foreseeable future. That can only help revenue and margins for the alternative delivery service, provided its prices only rise modestly.
The Biggest Loser?
Incredibly enough, it might well be the price of FedEx stock.
While higher prices will allow FDX to save what many estimate should be measured in hundreds of millions of dollars (though nowhere even close to a billion dollars) per year, that’s a relatively small piece of the $1 to $2 billion that FedEx typically books in profits on an annual basis.
And as sensitive as consumers and corporations alike are to costs right now, even a small bump in expenses is apt to be poorly received.
A large bump in shipping costs could lead to an outright revolt in the form of finding an alternative source of delivery.
It’s not just UPS and the post office that could see a little more delivery business thrown their way, either. Seeing the writing on the wall, Amazon itself has played with doing its own deliveries in select U.S. markets. It’s only a trial program, and hasn’t gone particularly well thus far. It would be years before the company could wean itself from third-party shippers, and it would likely never be able to handle all deliveries from coast to coast.
AMZN is certainly apt to be a little more motivated to make it work now, however.
Bottom Line for UPS, Amazon and FedEx Stock
While FedEx has almost adopted a cavalier “like it or lump it” attitude regarding its own shipping rate increase, that contempt might put the final nail in the coffin of a decision that will already put a great deal of pressure on the company and FedEx stock.
Amazon stock isn’t exactly sitting pretty here, either. If its own delivery service had some scale or it had its packaging techniques under control, it might be a different story. But with margins being painfully thin already, though, there’s no real “winning” for Amazon.
UPS stock owners, however, should be thrilled by the fact that their company’s key competitor flinched and a huge e-commerce company might need to do make some price comparisons soon.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.