Fuel surcharges trigger spike in parcel shipping costs

U. S. ground and express parcel shipping costs are on pace for a third consecutive record quarter as parcel carriers, responding to soaring crude oil prices caused by the Iran war, stack higher fuel surcharges on top of accumulated general rate increases, according to a quarterly market report from TD Cowen investment bank and AFS Logistics this week.

The analysis, which leverages freight audit and payment data from shippers of all sizes, predicts that both air and ground fuel surcharges are likely to continue rising should elevated oil prices persist and that they won’t quickly roll back once the conflict ends and crude prices drop.

“While the term ‘new normal’ may conjure unpleasant memories of the COVID era, businesses should brace themselves for a new normal of elevated fuel costs,” said AFS Logistics CEO Andy Dyer in a news release accompanying the report.

“Not only do the structural causes that spurred this spike take time to unwind, the related pricing changes, particularly in parcel, tend to be sticky, with effects that linger even after the underlying price of fuel recedes.” Fuel surcharges are percentage-based add-ons tied to fuel price indexes. When fuel prices move up, so does the surcharge.

But when prices fall, minimum thresholds often keep those percentages elevated. window. googletag = window. googletag || {cmd: []}; googletag. cmd. push(function() {googletag. defineSlot('/21776187881/FW-Responsive-Main_Content-Slot1', [[300, 100], [320, 50], [728, 90], [468, 60]], 'div-gpt-ad-1709668545404-0'). defineSizeMapping(gptSizeMaps. banner1).

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display('div-gpt-ad-1709668545404-0'); }); FedEx (NYSE: FDX) and UPS (NYSE: UPS) have built-in fuel surcharge mechanisms that have allowed them to automatically charge extra fees to cover the rising cost of diesel and jet fuel used to power their fleets.

It’s no secret that those fees have long been a strong source of carrier revenue because they are padded with extra profit margin. During the first quarter, the price of diesel fuel increased about 10% year over year, but ground fuel surcharges rose 26. 7%, according to the TD Cowen/AFS Freight Index.

Rival parcel carriers are now responding with fuel surcharges of their own for the first time. Amazon (NASDAQ: AMZN) on Friday will add a 3. 5% fuel surcharge to the fees merchants pay when Amazon Logistics ships their products from its warehouses and the U. S.

Postal Service is scheduled to add an 8% transportation surcharge — for direct fuel expenses and pass-through costs from contractors — starting on April 26. Super-regional carrier OnTrac has also updated its surcharge tables in the wake of the fuel price spike.

“Carriers have used the fuel surcharge as a potent revenue generator for years, ratcheting tables higher even during periods with relatively cheap fuel,” explained Mingshu Bates, chief analytics officer and president of parcel at AFS Logistics.

“Now that we have sky-high oil prices dominating headlines and priming the market to expect fuel to be a major cost, carriers have no reason to stop pulling that lever.” Consultancy ShipMatrix last year also documented howlegacy carriers have routinely implemented peak season surcharges even when demand growth was flat or low.

The effect of fuel and other surcharges, combined with annual general rate increases, has pushed up parcel shipping costs much faster than the increase in inflation. A five-pound package shipped via ground from Atlanta to a residential address in New York City, for example, cost $22. 52 in 2022 compared to $31.

94 in 2026 – a 42% increase compared to cumulative inflation of just 15% over the same period. The fuel surcharge alone increased 131% over those four years, according to the TD Cowen/AFS Freight Index. (Source: TD Cowen/AFS Freight Index) The report showed that the express delivery cost per package came in higher than initially forecast, reaching 8.

5% above the January 2018 baseline in the first quarter. The express cost per package was also 2. 6% higher in the first quarter compared to the prior quarter due to higher prices and a seasonal mix in service. The upward trend is expected to continue in the second quarter, with the express parcel index projected to reach a record high of 10. 3% in — up 6.

4% year over year. FedEx and UPS GRIs took full effect in the first quarter and when U. S. Gulf Coast jet fuel spiked 38% year over year in March, fuel surcharges shot up 46% from levels a year ago. Elevated fuel surcharges and GRIs also proved a potent combination in ground parcel, with the rate per package index reaching 39. 3%.

The ground parcel index is projected to set a record high for the third straight quarter — reaching 42% in the current quarter, up 1. 9% on a sequential basis and 6. 6% from the prior year. window. googletag = window. googletag || {cmd: []}; g