Despite the steepest decline in fuel prices in nearly six years, FedEx announced last week that it would be increasing the diesel and jet fuel surcharges for its customers effective Feb. 2.
Most shippers who use FedEx’s air and ground services will be facing fuel charges that are between 3.5% and 5% higher next month, according to Shipware, an industry consulting firm. Shippers with contracts that contain specific language governing surcharges may not be required to pay more.
As of Jan. 5, the national average for a gallon of gasoline stood at $3.13. Diesel prices were between $3.07 and $3.19 per gallon. And jet fuel was selling for an average of $2.30 per gallon, according to date from the US Department of Energy’s Energy Information Administration (EIA).
So if gas prices are so low, why is FedEx increasing its gas surcharge?
Alan B. Graf Jr., FedEx’s chief financial officer, explained that although FedEx has benefitted from the decline in fuel prices, the gains have been mostly neutralized by revenue reductions from lower fuel surcharges, according to a transcript of his remarks during a company conference call with analysts in mid-December.
Graff stated that there is a six-to eight-week lag time between FedEx’s fuel payments and the surcharges imposed to recoup those costs. So the company was stuck paying higher fuel prices in September before it could adjust its surcharges accordingly in November.
FedEx’s announcement comes just weeks after it changed the way it calculated shipping rates for many of the packages it handles. Both FedEx and UPS now use dim pricing, which is based on three-dimensional scanners that measure the size and shape of a package. This data is then used to calculate how much the shipper should charge based on how much space the package will take up in the vehicle. That allows shippers to charge more and still be able to maximize the space in cargo holds.