News / Integrators hit parcel shippers with fuel surcharges – as oil prices go down

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Parcel shippers may be scratching their heads over why they pay more for fuel used by their carriers while oil prices are in retreat.

The integrated carriers have caused the concern with their latest increases in fuel surcharges.

Since Monday, US shippers using FedEx Ground have faced a 16% fuel surcharge, up 100 basis points from the 15% the integrator charged previously, and UPS customers saw their fuel surcharge rise 50 basis points, to 15.25% a week earlier – but the carrier dialled that back to 15% on Monday.

The increases are somewhat baffling, considering recent oil price movements. The US Department of Energy’s Energy Information Administration (EIA) publishes a weekly index of fuel prices: the diesel index dropped 54 cents a gallon from its high in mid-September to 4 December, falling in nine out of 11 weeks. Three weeks earlier, the average diesel price on the index was 11 cents higher.

It fell again on Monday, to end up 10.5 cents lower than a week ago. This was the steepest weekly drop in the retreat that started in September.

The integrators follow the EIA index with a lag of one week, but with a twist. FedEx adjusts its fuel surcharge in line with price fluctuation of 9 cents a gallon on the index. Changes in the UPS fuel surcharge are predicated on a move of 12 cents a gallon on the index.

John Haber, chief strategy officer of Transportation Insight, said the express carriers were using “a somewhat murky methodology” in calculating their surcharges, which makes it difficult for customers to fathom the math behind changes.

Often increases in surcharges are explained simply as necessary compensation for higher operating expenses, he noted. “Most customers aren’t even aware that the fuel surcharge goes up. The carriers don’t send out notification to every single customer – maybe to the bigger customers.”

He advises shippers to include language in their contracts to be given notification of changes in charges.

Shippers who notice the change may choose not to dwell on it, dismissing it as a mere 1% increase, but this is not the case, Mr Haber pointed out. Moving the dial from 15% to 16% actually masks a considerably higher rise in the surcharge.

He advised shippers to push back on the increase – at the very least, they should receive a better explanation why the surcharge went up when oil prices were moving in the opposite direction.

If they manage to extract a discount, this will most likely be on the surcharge, and Mr Haber warned this would only be a temporary victory that would likely be eroded by future surcharge hikes.

A tangle of surcharges has become a fixed element of parcel shipping. Year after year they have delivered significantly higher increases in what shippers are billed than the annual general rate increases, he added.

In the current market conditions, the carriers feel they need to bolster revenue. Mr Haber said the outlook for the coming months pointed to a soft market, which forced them to offer discounts in order to retain business and gain new customers.

“How are they going to recoup some of these?”