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FedEx, UPS shares rally as analysts see big holiday season surcharges boosting their bottom lines

A United Parcel Service worker delivers packages in New York City.
Stephanie Keith | Getty Images

(This story is for CNBC Pro subscribers only). 

The looming holiday shopping season could pose a challenge to shipping companies already managing a surge in e-commerce, but that challenge should be a profitable one.

As FedEx and UPS have geared up for a busy sprint to the end of the year, including hiring tens of thousands of workers, Wall Street has showered the stocks in a flurry of estimate hikes and upgrades. Those are in part due to the earnings boost expected from surcharges, which can boost bottom lines and direct the largest customers into off-peak shipping times. 

The use of peak surcharges is not new for the shipping companies, but they could be a bigger factor with e-commerce demand already elevated do the pandemic.

"The industry's significant action on surcharges appears to be changing shipper behavior, creating potential for a smoother peak season that allows for more consistent fixed cost absorption," Deutsche Bank said in a note upgrading FedEx to buy from hold.

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