Price increases at bottom of parcel market should be positive for FedEx, UPS

Investing.com -- The parcel market is evolving with more emphasis on price, which Wells Fargo (NYSE:WFC ) analysts believe will benefit major players like FedEx (NYSE:FDX ) and UPS in 2025. 

In a nte Wednesday, the firm highlighted that the U.S. Postal Service (USPS), aiming to remain competitive, has announced substantial rate hikes that could reshape the dynamics at the lower end of the market.

USPS plans to raise prices for Parcel Select by 9.2% in 2025, following a hefty 25% average increase last July. 

Despite these hikes, USPS has seen growth in its Parcel Select and Ground Advantage products, supported by higher yields. Ground Advantage, offering 2-5 day delivery, experienced a 36% year-over-year increase in Q4 2024, with average prices rising to approximately $5.70 per piece, a competitive rate against UPS SurePost and FedEx Ground Economy.

Wells Fargo says the USPS continues to prioritize yield improvements due to its financial challenges. Every USPS product has shown an increase in revenue per piece (RPP), ranging from 2% to 11% year-over-year, signaling a need for ongoing price adjustments.

Meanwhile, both FedEx and UPS are responding with their own rate hikes. UPS announced a 10% increase in SurePost rates for 1-9 lb packages starting January 2025 and significantly raised its delivery area surcharges. FedEx plans to follow suit with similar surcharge increases, emphasizing a constructive pricing environment for 2025.

The shift towards higher pricing at the bottom of the market, coupled with strategic in-sourcing moves by UPS and FedEx, is expected to drive profitability. 

“Competition from the USPS increases, but the net result appears to be meaningful price increases at the bottom of the market, which should be positive for FedEx and UPS in 2025,” concluded Wells Fargo.

 

Source: Investing.com