Record holiday shipping; new pricing model; increase fuel surcharges — the strategies that drive FedEx profitability in 2015.
In May 2014, FedEx had announced that it would be applying dimensional weight pricing for all FedEx Ground packages. Instead of charging for a package simply based on its weight, FedEx will be charging its FedEx Ground customers on the basis of dimensional weight, which can be calculated by multiplying the length, breadth and height of the package, and then dividing by 166. The change in pricing mechanism could result in a 30-50% increase in package shipping costs for bulky-yet-light products ordered online such as toiler paper rolls, towels, shoes, diapers and purses. These packages occupy a lot of space in trucks but fetch lower revenues due to their light weight. The new pricing mechanism allows FedEx to charge a fair value for its most important asset, the space in its trucks, and also more efficiently cover operating costs. This should help drive improvement in the company’s revenue and margins in 2015.