United Parcel to Hike Service Rates: Will FedEx Follow?

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Atlanta-based United Parcel Service, Inc.UPS recently announced a 4.9% increase (on an average) of its service rates on all ground, air and international shipments.

The cost of shipping through the company's freight service will attract higher rates from Sep 19, 2016 while ground rates will escalate from Dec 26 this year. The package delivery company stated that the daily service rates for its U.S. Air and International services will be hiked by an average net 4.9% from Dec 26. From the same date air freight rates (domestically as well as between the U.S., Canada and Puerto Rico) will increase by the same percentage. The company had resorted to similar hikes in its service rates last year as well.

This major player in the transportation field intends to utilize the amount gained from the current service rate hikes in its expansion initiatives. The company has been venturing into major destinations worldwide and continues to deliver the best service possible. The company recently announced expansion of UPS Worldwide Express Freight services to nine new countries - Bahrain, Bangladesh, Kuwait, Malta, Morocco, Pakistan, Qatar, Sri Lanka and Tunisia. Additionally, the company announced last month that it has commenced expanding its Louisville Centennial Hub.



With United Parcel announcing a rate hike, we expect its rival FedEx Corporation FDX to follow suit. The Memphis, TN based company is slated to release its first-quarter fiscal 2017 results on Sep 20, 2016. We won't be surprised if the company decides to make an announcement concerning rate hikes on the conference call.

We believe that an immediate rate hike by FedEx is all the more likely as it can utilize the additional amount for integration purposes. We remind investors that in May this year FedEx completed the acquisition of TNT Express. The buyout has significantly expanded FedEx's scale of operations, particularly in Europe.

Zacks Rank & Key Picks

United Parcel currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the transportation space are Air Transport Services Group Inc. ATSG and Copa Holdings SA CPA . Both stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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