Every shipper knows that advertised shipping rates don’t give a very accurate picture of how much shipping is really going to cost. As much as 35 percent of an average business’s shipping bill goes to surcharges and accessorial fees, not to flat rates.
Some of those fees (like additional handling surcharges) apply only to certain types of packages. But fuel surcharges apply to pretty much every shipment. And they can change week to week, sometimes as dramatically as oil price fluctuation.
It makes sense for carriers to peg fuel surcharges to oil prices, so they can pass costs to shippers accordingly. After all, fuel isn’t like labor or paying back loans for construction or a new fleet of trucks. Oil prices can change overnight, eating into carriers’ margins.
But carriers can also use rising costs to their advantage to increase revenue. Fuel surcharges rise and fall, but carriers need to maintain their margins. And fuel costs have been low recently. That means carriers aren’t charging as much as they used to in fuel surcharges. That is, at least in terms of real dollars; the percentages that set fuel surcharges rise pretty much every year.
This year, UPS found another way to increase its revenues from fuel surcharges: apply them after some common accessorials, so they can squeeze another few dollars out of packages that are already very expensive for businesses to ship.
Fuel surcharges are typically determined based on the net package charge plus certain accessorial fees. It’s essential that shippers know exactly what those fees are.
As of Dec. 26, 2018, the United Parcel Service (UPS) now assesses fuel surcharges after four key accessorial charges: additional handling surcharges, over maximum limits surcharges, signature required surcharges and adult signature required surcharges.
That’s a change from a few months ago. On ground shipping, UPS previously assessed fuel surcharges only on residential, large package and delivery surcharges; return service charges; and international extended area charges.
Air and international services attached fuel surcharges to almost twice as many accessorial fees including pickup charges, Saturday pickup, delivery charges and large package surcharges.
UPS also upped its Domestic Air Fuel Surcharge, a change that took effect on Dec. 31. This fuel surcharge rose by 0.25 percent for all thresholds.
As of Jan. 7, UPS’s domestic air fuel surcharge was 6.25 percent. The surcharge is based on the National U.S. Average on Gulf Coast Jet Fuel Price and updated weekly.
The ground surcharge sat at 7.25 percent. The rate is based on the national U.S. on-highway average price for a gallon of diesel fuel and is reported by the U.S. Energy Information Administration.
UPS also has separate surcharge schedules for international air, depending on whether shipments are exports or imports.
FedEx hasn’t made any changes to its fuel surcharges since September. Like UPS, FedEx’s fuel prices fluctuate weekly based off surcharge percentages. Surcharges for Express services are based on the U.S. Gulf Coast spot price for a gallon of jet fuel, and those for Ground services are based on the U.S. on-highway average price for a gallon of diesel fuel.
FedEx Freight has a separate schedule of fuel surcharge percentages that’s based on the national average diesel prices.
For the week of Jan. 7, the FedEx Express surcharge stood at 5 percent for U.S. and Puerto Rico shipping. UPS charges 6.25 percent for a comparable service.
FedEx Ground listed its surcharge at 6.75 percent for that same week. That’s slightly lower than UPS’s 7.25 percent for a similar service.
Even though the actual values of fuel surcharges fluctuate weekly, UPS and FedEx compete in this area. For now, FedEx’s surcharge percentages are lower than UPS’, and UPS just tacked on fuel surcharges on top of a few additional fees. FedEx may follow suit.
How to Save
Like everything in a shipping contract, fuel surcharges are negotiable. It may not be reasonable to ask for a one percent reduction across the board, but savvy negotiators can target business-specific pain points to find savings that will go a long way.
Resource: Your Guide to Negotiating Better Shipping Rates
To find those pain points, examine your invoices to understand how much you spend on fuel surcharges. Then, model some alternative scenarios. Would a different service from your current carrier save you money? What if you avoided some other accessorial fees? Does it make sense to consider a competing carrier?
That detailed analysis can be time-consuming and intense. Most small businesses—as well as many medium-sized and large businesses—don’t have the time or labor available to dig into their dense shipping invoices.
That’s what Reveel is for. Our expert consultants can undertake a top-to-bottom review of your shipping spending, share ideas for supply chain or contract changes and help you prepare for contract negotiation. The best part? You don’t have to pay us unless we save you money. Get started with a free invoice audit today.