Carriers battle rising diesel prices with fuel surcharges

| Friday, September 20, 2002

FedEx, UPS and Airborne Express are watching carefully as the cost of diesel (both for their trucks and for their jets) hits a 51-week high. To avoid making frequent changes to shipping charges, these major small package carriers find the fuel-surcharge approach preferable.

"Carriers and shippers have found that implementing a fuel surcharge is a more suitable approach than having to modify their shipping charges with frequent changes in fuel prices," said Satish Jindel, a transportation consultant at SJ Consulting Group, Pittsburgh, in an interview with the DM (Direct Marketers) News. "This approach helps with auditing charges and eliminates extra IT work involved with changing rates in the manifest systems."

This week, United Parcel Service Inc. and FedEx Corp. announced a plan to raise their fuel surcharges Oct. 7 as a result of an August increase in the national average of highway diesel fuel prices reported by the U.S. Department of Energy. Customers probably won't see these increases retreat for a while. On-highway diesel prices hit a 51-week high according to average prices released Sept. 16 by the Energy Information Administration.

On Tuesday, on-highway diesel was reported at a national average price of $1.414 per gallon. The last time the national average hovered around the $1.40 per gallon mark was the first week in October 2001. The national average has risen more than 10 cents per gallon in five weeks, according to the weekly EIA reports.

Memphis-based FedEx and Atlanta's UPS adopted index-based fuel surcharge calculation methods last year based on fuel prices published monthly by the Energy Department. Changes to the surcharge take effect the first Monday of the month.

"We are not happy about the change, but [the way it is calculated] is very fair, and it's the lowest in the industry," said Steve Holmes, a UPS spokesman, told the DM News. "We have nothing to be ashamed of, and while we know that our customers would not like to have an increase at all, this system works well for both us and for our customers. It gives our customers some level of predictability, and they can realize the benefits when the fuel prices go down."

Airborne Express does not base its fuel surcharges on the Energy Department, but tracks the rise and fall of fuel costs and makes regular adjustments. On Oct. 7, it will raise its surcharge from 2.9 percent to 3.5 percent for all air express shipments moving through its transportation network.

"Our cost of fuel, especially jet fuel, has increased significantly in recent months," Carl Donaway, chairman/CEO, Airborne Inc. told the DMNews. "Our company uses millions of gallons of jet fuel each year; the higher price causes a considerable increase in our operating expenses that cannot be fully absorbed or mitigated by our ongoing cost-reduction efforts. We will continue to monitor fuel trends carefully and make additional changes to the fuel surcharge as warranted."

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