Dive Brief:
- UPS recently increased its fuel surcharge calculations for deliveries and FedEx is slated to follow with its own increase next week. The price bumps are placing additional pressure on shippers as the carriers move to grow their per-package revenues.
- UPS increased the percentage markup for its domestic Ground, Air and SurePost fuel surcharge tables by 50 basis points on Monday. FedEx is hiking its U.S. ground and Express fuel surcharge tables by 100 basis points effective May 6.
- The increases come on top of fuel surcharge hikes the two delivery giants levied in December, according to Shipware. OnTrac, the fast-growing carrier competing with FedEx and UPS, is also increasing its fuel surcharge tables by 50 basis points starting May 27.
Dive Insight:
FedEx and UPS' index-based fuel surcharges are adjusted weekly based on prices reported by the U.S. Energy Information Administration. For air shipments, it's based on the U.S. Gulf Coast price for kerosene-type jet fuel. For ground parcel shipments, the surcharge is based on the national average on-highway diesel fuel price.
For example, if the diesel fuel index's price per gallon is between $3.37 per gallon and $3.46 per gallon, a FedEx Ground delivery would see a 14% markup. The surcharge percentage for that fuel price range will jump to 15% on May 6.
FedEx fuel surcharges to increase
| Price per gallon of diesel fuel | Fuel surcharge before May 6 | Starting May 6 |
|---|---|---|
| $3.37 - $3.46 | 14% | 15% |
| $3.46 - $3.55 | 14.25% | 15.25% |
| $3.55 - $3.64 | 14.5% | 15.5% |
Note: The fuel surcharge continues to increase by 25 basis points for each $0.09 increment.
UPS fuel surcharges climb
| Price per gallon of diesel fuel | Fuel surcharge before April 29 | Starting April 29 |
|---|---|---|
| $3.26 - $3.38 | 14.25% | 14.75% |
| $3.38 - $3.50 | 14.5% | 15% |
| $3.50 - $3.62 | 14.75% | 15.25% |
Note: The fuel surcharge continues to increase by 25 basis points for each $0.12 increment.
"The fuel matrix is inherently designed to account for changes in the price of fuel, so modifying the fuel matrix is simply a lever the carriers pull to drive more revenue per piece," said Paul Yaussy, senior consultant for professional services at Shipware, in a LinkedIn post.
A stretch of lower fuel prices have translated into decreased fuel surcharges for FedEx and UPS, challenging both companies' results in their most recently reported quarters.
Fuel price changes decreased UPS' growth in revenue per package by 90 basis points in Q1, EVP and CFO Brian Newman said on an April earnings call. Heightened surcharges and projections of increased fuel costs are expected to turn that around.
"On the fuel surcharge as we look to the rest of the year, fuel prices are increasing, and this is not atypical for us to adjust our surcharge on the base of rising fuel costs," CEO Carol Tomé said.
Tomé added that some customers are exempted from the surcharge changes. Those that aren't will have to brace for higher delivery expenses. According to the TD Cowen/AFS Freight Index, fuel surcharge hikes and other delivery fee tweaks are expected to drive up the rate per package in Q2.
A news release announcing the Q2 index said there have been discrepancies between increases in the indices and the fuel surcharges levied by FedEx and UPS in recent years.
"As of March 2024, the jet fuel index is up 40% since 2021, but during the same period, the express fuel surcharge for both carriers is up over 100% for both carriers," AFS Logistics said. "A similar discrepancy exists for ground, with the diesel index up 22% since 2021, but the ground fuel surcharge for both carriers is up over 75%."
