UPS and FedEx increase fuel surcharge – because they can

Dan Weissmann Feb 3, 2015
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UPS and FedEx increase fuel surcharge – because they can

Dan Weissmann Feb 3, 2015
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UPS handed investors mixed news when it announced 2014 earnings. Shipping volumes were way up, but profits were down. The company made big investments to meet the 2014 holiday rush – including about 100,000 temporary hires— but didn’t get quite as much revenue out as it had wanted.

Still, don’t feel too bad for UPS. CEO David Abney said the company would start tacking on extra holiday charges. And these are in addition to fee increases by both UPS and rival FedEx that include hikes in fuel surcharges, even though the price of fuel is down. 

FedEx has actually raised its fuel charge, from 5.5 percent to 6 percent. The UPS formula is more complicated: The company has changed how it calculates the fee for ground shipments, so the surcharge doesn’t reflect a drop in fuel prices.  

“The price of a gallon of fuel is down a buck,” says Jerry Hempstead, a consultant who works with shipping customers to help them get better rates. “You would think: “Oh, the fuel surcharge could even go away.’ Well, no.”

He thinks it’s the opposite of a price war. First UPS had higher rates. FedEx bumped. Now it’s UPS’ turn.

“They did it because they could,” he says.

The price of sending a package includes a bundle of smaller charges, many of which have gone up. The “base rate” just saw annual increases of about 5 percent from both carriers. There are also bumps in “accessorial charges“— like extra fees for delivering to remote locations.

The biggest increase comes from a new way of charging for smaller packages. Instead of charging by weight, shippers now also count the size. That change alone raised shipping prices by an average of 17 percent, according to an analysis by Shipware LLC, another company that helps shipping customers negotiate with carriers.

Not all companies will feel that cost the same way, says Rob Martinez, Shipware’s president and CEO. A company that makes microwaves and refrigerators, for instance, wouldn’t necessarily take a hit. 

“Other shippers, it is literally doubling some of their costs,” he says, meaning companies that ship lightweight items in bigger boxes. 

Martinez thinks FedEx and UPS can impose these fees because they’re the only two national companies in the business.

“It’s great for UPS and FedEx investors,” he says. “But lack of competition is bad for shippers.”

Some of his customers are giving the U.S. Postal Service another look. “Their ‘Priority Mail’ product is actually a pretty good product,” Martinez says.

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