FedEx and UPS increased their fuel surcharge calculations in recent weeks, putting upward pressure on delivery prices despite a soft demand environment.
The fuel surcharge for UPS' U.S. ground and SurePost services are now 175 basis points higher than they were five months ago, following changes that took effect Aug. 26. FedEx's ground shipping fuel surcharges have also increased by a similar amount after adjustments made on Sept. 2.
The delivery giants adjust their index-based fuel surcharges weekly. Fees tacked onto ground parcel shipments are based on the U.S. Energy Information Administration's average on-highway diesel fuel price.
As an example, if the diesel fuel index's price per gallon is $3.30, a UPS SurePost delivery would include a 16% markup after the recent adjustments. Five months ago, it would have been a 14.25% surcharge percentage.
There has been a growing divergence between surcharges and the actual price of fuel, according to the TD Cowen/AFS Freight Index released July 16. FedEx and UPS' ground fuel surcharges would be 5.5% lower if they followed diesel prices more closely, but higher fees allow them to gain additional revenue despite lower demand, per the index.
The carriers' fuel fee adjustments can help pad their bottom line even in a weaker demand environment. In a June earnings call, FedEx EVP and Chief Customer Officer Brie Carere said fuel surcharge increases should benefit the company's per-package revenue.
Even with the increases, FedEx and UPS shippers have been able to blunt their effects on delivery costs in recent months by securing lower shipping rates or exemptions from surcharge changes.
"However, if there's a silver lining, it's that carriers are more open than ever to negotiating fuel surcharge discounts - discounts that were typically reserved to court the largest of shippers, a fraction of customers," parcel spend consultancy Shipware said in a LinkedIn post last month.
