UPS To Hike US Diesel Surcharges Under Adjusted Formula

Tyler Durden's Photo
by Tyler Durden
Monday, Dec 04, 2023 - 04:00 PM

By Mark Solomon of FreightWaves

UPS Inc. has raised its fuel surcharge on its U.S. ground parcel and SurePost delivery services by 50 basis points in what is believed to be the first time in more than 18 months that UPS has changed its formula to reflect applicable surcharges on those services.

Effective Monday, UPS will assess a 15.25% fuel levy on all shipments moving under those domestic services. The surcharge applies to the base rates and to any add-on charges known as accessorials. 

The last time UPS changed its fuel surcharge table was in April 2022 during a cycle when weekly diesel prices set by the Department of Energy’s Energy Information Administration (EIA) frequently exceeded $5 a gallon. Fuel prices spiked along with the price of oil amid fears that Russia’s invasion of Ukraine would disrupt commodity supplies.

UPS’ most recent move, however, comes amid an ongoing downward move in diesel pump prices. The weekly on-highway diesel price set on Monday by the EIA stood at $4.14 a gallon. That is 15 cents a gallon below the price set two weeks prior and nearly $1 a gallon below the average pump price at this time a year ago. UPS and rival FedEx Corp. adjust their prices with a one-week lag from the most recent EIA price.

By contrast, surcharge levels will decline for U.S. domestic air, international import and export services. They will rise for the carrier’s international import and export ground services. Air shipment surcharges are set to the EIA’s jet fuel index.

UPS was unavailable for comment at press time.

UPS and FedEx index their diesel levies to a band of prices established by the EIA. UPS has in the past adjusted its ground-delivery surcharges 25 basis points for every 12 cents-a-gallon move in the EIA diesel price. FedEx Ground, FedEx’s ground delivery unit, adjusts its surcharges for every 9 cents-a-gallon move in the EIA diesel price.

For example, UPS’ upcoming 15.25% levy is based on an EIA-established price that is at least $4.10 a gallon but less than $4.22 a gallon. Currently, the levy is 14.75% for prices falling within that band.

UPS’ action will bring its levy on U.S. ground shipments in line with FedEx, which currently assesses a 15.25% surcharge within the same pricing band. Nate Skiver, founder of parcel consultancy LPF Spend Management LLC, said one of UPS’ goals is to achieve parity with FedEx’s surcharge pricing. The other is to boost revenue per package, which has taken a hit due to pricing pressure and changes in volume mix.

“It also helps to set a higher floor on the fuel table, which is now relevant with diesel prices moderating,” Skiver said in a LinkedIn message.

UPS, FedEx and other parcel delivery carriers have wide latitude as to when they adjust diesel and jet fuel surcharges. In recent years, surcharges have remained elevated despite world price fluctuations that have headed south. Analysts who follow the fuel surcharge market have said that surcharge levels stay higher long after prices have dropped, thus allowing the carriers to reap additional revenue on each transaction.

Historically, small to mid-size shipper s have found it difficult to reduce fuel surcharges through negotiations, while bigger shippers have to tender certain volume minimums for the carriers to consider reducing the levies. However, in what has turned into an all-out price war as carriers aggressively bid for business, the carriers have let it be known that fuel surcharge discounts are very much on the table.

Domestic ground parcels are UPS’ largest business. SurePost is the name for a service provided in conjunction with the U.S. Postal Service in which UPS picks up and aggregates low-value, nonurgent parcels and inducts them deep into the postal infrastructure for last-mile delivery to residences.