FedEx plans to increase rates on air shipments by its largest percentage in more than a decade early next year, reflecting the company's need to squeeze more revenue from customers amid a weakening economy to cover the costs of its China expansion and the rising price of fuel.

The move will raise the cost of the average air package by 6.9 percent on January 7, compared with this year's 5.5 percent increase, which had been the biggest jump in 10 years. The new rates apply to all packages originating both inside and outside the US. FedEx is the leader in the air-cargo industry, flying an average of more than 3.4 million packages a day in its latest fiscal quarter ended August 31.

The rates will mostly affect retail customers and small and mid-size businesses with lower volumes. The retail segment, primarily because of surging internet purchases, has become a strong growth area for FedEx and is growing at a faster rate than US commercial deliveries.

The increase indicates pricing remains firm despite the slowing economy and weak freight volumes that have pinched profit at most transportation companies. Many shipping customers hadn't expected the new rate increase to be so large and said FedEx and rival United Parcel Service had been aggressively negotiating rate discounts in recent months to hold on to package volumes.

The new rate also is intended to offset a planned two percent drop in the surcharge levied on customers to pass on fuel costs. FedEx will try to recover that revenue by essentially folding those two percentage points into the overall rate increase. Major customers typically get substantial discounts on the base rates in exchange for shipping heavy volumes.

FedEx hopes that by reducing the air-fuel surcharge, which is expected to rise to 16.5 percent in November, will discourage shippers from shifting their goods to the ground to save money. At FedEx, the typical US air shipment brings in more than twice the revenue of a ground-delivered shipment.

Air deliveries contributed 64 percent of FedEx's revenue in the past quarter. While international volumes have grown steadily, the US market has remained flat and forced FedEx to shed unprofitable air shipments. At the same time, the company's construction of its Asia hub in China and launch of intra-China service is pushing costs higher. Yield per package, or the revenue generated by each delivery, for air deliveries fell two percent in the past quarter.

Doug Caldwell, a consultant who helps shippers negotiate rates with carriers said all the carriers are facing rising costs and in this environment, they're going to have to pass those on. He said even some of the large shippers are going to see rate increases.

The new rate structure limits increases on deliveries travelling shorter distances, such as commercial shipments that comprise the majority of FedEx's business. Home destinations are the costliest, especially in fuel, because houses and apartments are usually scattered more widely than office buildings.