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“Transitory” Inflation Strikes Again: FedEx Announces Big Rate Hikes

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In yet another sign “transitory” inflation might not be so transitory, FedEx has announced plans to significantly hike shipping rates in 2022.

FedEx said it will raise rates for US domestic, export and import services by 5.9%, on average next year. Some freight rates will rise as much as 7.9%. The company also plans to raise its Ground Economy rates along with fuel surcharges. The rate hikes will go into effect on Jan. 3.

This represents the biggest increase in shipping costs in more than a decade.

The company says the price increases are necessary due to a “challenging operating environment.” That corporate-speak for “our prices are increasing and we are going to pass along those costs to the customer.”

UPS will release its 2022 rate increases in the coming weeks. It is expected to follow FedEx’s lead. The companies have raised rates essentially in lock-step since 2010, according to Transportation Insight LLC. UPS has already announced an increase in fuel surcharges.

Large companies typically negotiate shipping rates lower than the public, but they will see a significant increase in their shipping costs as well. Typically, these annual rate increases would come in around 2.5 to 3%. According to shipping consultants quoted by Fox Business, some large shippers have received contract renewals that would cap their annual increase at 5% in recent weeks.

As a Fox Business article noted, these rate hikes will put pressure on companies that provide free shipping such as Amazon and Walmart to raise prices or find other ways to offset higher costs. This illustrates how inflation spirals. Rising prices in one sector force other sectors to raise prices which leads to price hikes elsewhere in the economy.

The combination of increased parcel rates, as well as cost pressure from labor and other supply-chain inflation, could lead retailers of all sizes who have counted on online sales for growth to re-evaluate some of their longstanding offerings, according to shipping consultants. Free shipping could go away or the threshold to avoid shipping fees could rise. Costs online and in store could diverge. Some merchants may elect to sell some large items only in-store.”

Consumers are already dealing with significant price increases. If you annualize the year-to-date increase in CPI through the first 8 months of 2021, it would come in at 6.3%. Producer prices are rising even faster.  Annualized PPI is up 10.5% on the year, a full 4% ahead of CPI. The big divergence between CPI and PPI doesn’t bode well for the consumer. Companies can’t eat diminishing margins forever. At some point, they will pass on these rising prices to consumers.

Some companies may have held off on raising prices in the hope that inflation really will be transitory and that price pressure would eventually ease. But it’s becoming increasingly clear that these price increases are forever. Do you really think FedEx will cut rates at some point down the road? As the transitory inflation narrative continues to unwind, more companies will likely begin passing on these higher costs to their customers.

As Peter Schiff said in a tweet, “Consumers will get hit much harder in 2022 than in 2021!”

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