Parcel shippers have been grappling with rising carrier fuel surcharges for months. The struggle has now entered a new dimension.
On Monday, the Energy Information Administration (EIA) reported a 74.5 cent per gallon increase in the national average diesel fuel price to $4.845 per gallon, the largest week-over-week increase in the index. diesel since the EIA started keeping records. in 1994. The jump, in turn, will trigger significant increases in fuel surcharges imposed by the ground unit of FedEx Corp. (NYSE: FDX) and the domestic ground parcel business of UPS Inc. (NYSE: UPS).
Based on carrier calculations, FedEx Ground customers will pay an additional 15.25% on all shipments, starting this Monday. Starting March 21, UPS customers will pay an additional 14.5% on each ground delivery. FedEx surcharge changes take effect one week after the most recent EIA price, which is published every Monday. UPS’s adjustments have a two-week lag from the latest EIA price data.
Both carriers adjust their surcharge levels by 25 basis points and use price ranges to determine what to charge. FedEx’s band moves in 9-cent-per-gallon increments, while UPS’s bands are based on 12-cent-per-gallon movements in the price of diesel. For example, FedEx will set a surcharge rate if the price of diesel is at least $4.54 per gallon but no more than $4.63 per gallon, and another if prices vary by at least $4.63 $ per gallon but not more than $4.72 per gallon. UPS applies the same formula, but uses increments of 12 cents per gallon.
For air shippers of both carriers, the kerosene surcharge will be more painful. On Monday, the EIA’s reading for jet fuel prices was $3.71 a gallon, up 13 cents from the previous Friday’s price. FedEx Express, the company’s air and international unit, imposes a 16% surcharge on domestic shipments if prices fall between $2.96 and $3.01 per gallon. Based on last Monday’s price, U.S. FedEx Express customers could face surcharges of nearly 20% starting this Monday.
International shippers of the unit will be hit even harder. Unlike domestic express surcharges, international surcharges move in increments of 4 cents per gallon. When jet fuel prices reach a range of $2.91 to $2.95 per gallon, FedEx Express imposes a 16.25% surcharge on air exports and a 19.25% tax on air imports. With current prices 80 cents per gallon higher than the front end of the range, shippers could face surcharges well over 20% depending on shipping direction.
UPS shippers face the same hammer. On March 21, UPS domestic kerosene surcharges will reach 20%, export taxes will exceed 24%, and import taxes will exceed 30%. UPS’s domestic fuel surcharges scale in 5-cent-per-gallon increments, while its international fuel taxes scale in 3-cent-per-gallon increments.
Fuel surcharges are imposed on both carriers’ base fares and most of their additional or incidental charges.
Josh Dunham, CEO of Reveel Group, a parcel consultancy, said sharp, sudden spikes will put more pressure on shippers to decide whether to absorb some or all of the increase, and how much can be passed on to the end customer without threatening the competitive position of shippers. Reveel customers who ship with UPS have seen their fuel spend double to more than 10% currently at 5.42% in the first quarter of 2021, Dunham said.
FREIGHTWAVES’ list of Top 500 For-Hire Carriers includes FedEx (#1) and UPS (#2).
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