It has been nearly a month since FedEx (NYSE:FDX) reported fiscal-first-quarter 2009 earnings, and the wound remains raw. So I just want to say "thanks" to UPS (NYSE:UPS) for driving by Friday and pouring in some salt.
As you may recall, my biggest objection to FedEx's news wasn't its earnings or revenues -- those both matched guidance perfectly. Nor was it forward guidance. The predicted 15% decline in fiscal '09 earnings may not impress, but it's hardly unexpected in this economy. No, what really ticked me off was the rate increase.
What rate increase?
The 6.9% uptick in shipping fees. The one FedEx announced last month -- and that UPS mimicked last week.
Aiming to restart his growth engine, FedEx CEO Fred Smith promised last month to "enhance the customer experience, gain market share, reduce expenses, [and] improve profits." Now, I applaud management's slashing capital spending because it will promote free cash flow. And as a Boeing (NYSE:BA) shareholder, I was selfishly gratified to learn that part of the cash FedEx will spend will go to purchasing fuel-efficient Boeing birds.
But FedEx isn't stopping at cutting costs. It also wants to enhance profits at your and my expense. Specifically, management promised to first "increase shipping rates by an average of 6.9% for U.S. and U.S. export services" and then give back two points in the form of lower fuel surcharges -- charging 4.9% more, net.
UPS framed its increase similarly: UPS Ground shipments will incur "an average increase of 5.9 percent" in 2009. Air express and international shipments will get a "6.9 percent increase in the base rate, less a 2 percent reduction ... in fuel surcharge" -- again, 4.9% total.
The song remains the same
Just as UPS's move mimics FedEx, so do my objections: The price of oil has fallen by more than half over the past several months. But all we get is a lousy two-percentage-point drop in fuel surcharges? And not even that -- a 5% increase in overall shipping costs?
Call me crazy, but I fail to see how these price increase will gain market share for either party to enhance anybody's "experience." To the contrary, I fear the most FedEx and UPS will accomplish is raising the cost of business for everyone from major corporate customers like Rite-Aid (NYSE:RAD) and Zumiez (NASDAQ:ZUMZ) to the small shippers operating out of virtual storefronts on Amazon.com (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) -- slowing a wounded economy even more, and "improving profits" for nobody.
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