FedEx & UPS Sticking With High Fuel Surcharges Even As Gas Prices Drop

Even as prices for both diesel gasoline and jet fuel have dropped, the country’s two largest parcel shippers have remained steadfast in maintaining surcharges that will make it more expensive for businesses to fulfill online orders this holiday season.

The Wall Street Journal notes that FedEx’s upcoming increase — its second this year — could have a significant impact on e-commerce retailers. It gives the example of a company shipping 100 shoeboxes overnight from New York City to Atlanta. Currently, the FedEx surcharge on that shipment is $67. After Nov. 2, that same delivery will hit the shipper with a $170 surcharge.

That’s still less expensive than the UPS surcharge on those 100 boxes. The Journal reports that the shipper would face a $200 charge on that shipment via UPS.

Meanwhile, the price of diesel gasoline — which powers many delivery vehicles — has dropped by about one-third during the last year. And spot prices for jet fuel — needed to get those planes in the air — are about half of what they were a year ago.

In recent quarterly earnings reports, the companies acknowledged that their overall fuel costs were down about 35%, but FedEx says that surcharge is needed because it’s carrying more heavy packages and making more residential deliveries. Even though gas is cheaper, the company says these shipments use up more fuel.

UPS defends its fuel surcharge as a necessary evil to “to reduce price volatility and ensure that revenue is properly aligned with our cost of service.”

“There’s no justification for it, because there’s just no explaining it, other than they’re paying a whole heck of a lot less for fuel, and they don’t want to pass any fuel savings along to their customers,” said John Haber, CEO of supply chain management firm Spend Management Experts tells the Journal.

The companies may be trying to make up for the loss of revenue from all the light documents that once dominated the express-shipping business. Since most documents can be transmitted, edited, and signed online, businesses no longer need to overnight anywhere near as much paperwork as before.

At the same time, e-commerce retailers are doing more and more business with FedEx and UPS. But even a small parcel — like the aforementioned shoebox — is still bulkier and heavier than a flat envelope containing a contract or purchase order.

For smaller e-commerce companies, part of the problem is that they lack the size to negotiate significant discounts on shipping and aren’t as deep-pocketed as bigger e-tailers like Amazon who can eat some of the shipping costs.

“Shipping is one of our biggest line items, and is hard to pass on to the customer,” the co-founder of eCreamery explains to the Journal.

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