UPS and FedEx Quietly Expand Fuel Surcharges

If you weren’t paying close attention last week, you probably missed the news that UPS is expanding the types of shipments that are subject to its fuel surcharges. The carrier’s new list of delivery types that trigger a surcharge, which went into effect on August 19th, now includes address corrections and dangerous goods shipments (hazardous materials). 

Shipments that were already affected by a fuel surcharge include deliveries to a remote location, packages where a signature is required, and Saturday deliveries.   

Following the UPS announcement, FedEx announced its own new fuel surcharges, which go into effect on September 2nd. The new charges impact package services for domestic air, ground, home delivery, international ground, and express freight services.

Parcel carriers began imposing fuel surcharges in the early 2000s to offset wildly fluctuating fuel prices that were eroding their margins. Since then, carriers have regularly monitored gas prices and adjusted their fees accordingly. 

US Fuel Prices Are Dropping — So Why the Change Now? 

Over the years, fuel surcharges have become a significant revenue stream for carriers. But US average fuel prices are dropping — with current prices nearly 50 cents lower per gallon than August 2023 — and are expected to keep falling through the end of 2024. That means per-package fuel surcharges will also need to trend downward soon. Expanding the list of affected shipments is an easy way for carriers to increase their revenue, without changing their posted “base” rates or altering their existing contracts with shippers. 

Given UPS’s well-publicized financial troubles — and analysts’ claims that the carrier has overestimated its 2024 holiday shipping volumes — it’s not surprising that UPS is looking for new revenue sources. And it’s expected that FedEx would follow suit, especially since the carrier faces its own challenges. But the new fees are creating added complexity, as well as additional shipping costs, for many companies. And, because the announcements were so lowkey, the new fees will take unprepared shippers by surprise, affecting their profit margins. 

What can you do to prepare for the impact on your business? The best advice we can give you is to remain informed. Make sure you understand the effects of the new fuel surcharge schedules on the nature of your shipments, your key delivery areas and other business aspects. For example, for a non-negotiated UPS air rate package that includes a material that’s considered hazardous — like a lithium-ion battery —you might be paying as much as $1-2 that you weren’t paying two weeks ago. We don’t need to explain the huge financial impact you’re going to feel across hundreds or thousands of deliveries. 

Fuel surcharges are nothing new — and carriers reserve the right to add them at any time, with no warning. But that doesn’t mean shippers have to sit back passively and pay them.  

If you rely heavily on UPS and FedEx, and you haven’t rationalized your total delivery spend in while, it’s time to do so. Coupled with the aggressive holiday rate increases UPS announced in July, followed by FedEx, it’s becoming steadily more expensive to use these carriers.   

That’s why it’s essential for shippers to regularly assess the cost-effectiveness and service levels of the carriers they use. Redwood’s Parcel Advisory experts can help you take an objective, analytic look at your annual shipping requirements, behaviors and patterns. They can match your needs with an optimal mix of carriers that meet both your cost and service goals. Redwood’s Parcel Advisory team can also coach you on rate and contract negotiation to make sure you’re getting the most bang for your shipping bucks. 

Your job is hard enough, without having to constantly pay attention to the quiet announcements and hidden fees of the major carriers. Let Redwood do the heavy lifting, while you focus on your core business activities. Sound like a plan? Contact Redwood today for an objective, open conversation about how you can make UPS and FedEx work for you.