Understanding Fuel Price Increases and their Effect on Shipping Costs

Fuel prices are rising – and they’re starting to have an effect on what you pay carriers to ship goods to your customers. Inflation was already raising the cost of doing business, and that, combined with the large general rate increases the big two carriers had announced, already meant you’d be likely spending more on shipping in 2022 than you did last year. Now, due to Russia’s war against Ukraine and the resulting cutbacks in oil availability, the price of fuel has increased – and, as expected, that is being passed on to shippers by the carriers.

However, there’s more to how carriers calculate fuel prices than simply a passed on expense. Carriers such as FedEx and UPS publish what they call a fuel table, which indicates what they charge for fuel as a percentage of a package’s transportation cost. That fuel surcharge percentage is dependent on the price per gallon of fuel, as determined by the United States Energy Information Administration (EIA). 

There are different fuel percentages for each type of service. For example, for Express and International shipping, carriers use the price of jet fuel as a base. For Ground shipping, carriers use the price of diesel fuel. Both carriers then take those prices and apply them to a fuel price range in the table that determines the percentage of the surcharge.

For some specifics on how the carriers calculate fuel surcharges – including the latest edition of the fuel tables, see the links below:

UPS – https://www.ups.com/us/en/support/shipping-support/shipping-costs-rates/fuel-surcharges.page 

FedEx – https://www.fedex.com/en-us/shipping/fuel-surcharge.html 

You may have noticed that in that last sentence I mentioned the “latest edition” of the fuel tables. That was said on purpose. Both carriers can issue new fuel tables as they deem necessary. The idea has typically been to enable them to increase what percentage of fuel costs are passed on to shippers, as their own costs increase. 

That said, the carriers have proven that they’ll increase the ranges in their fuel tables both to cover increasing expenses, and also when it’s most advantageous for them to do so. For example, one of the big two carriers updated their table ranges at least three times in the past half a year. FedEx increased its fuel charge another 1.75% across the board in early April.

Using the Reveel Shipping Intelligence Platform to do some quick analysis of the data around the fuel increases, we found some startling figures. 

  • UPS’ fuel surcharge has already nearly doubled from the same time last year – increasing from 5.42% of the total shipping cost in Q1 2021 to 10.04% of the total shipping cost in Q1 2022.
  • For FedEx customers, the increase is almost the same. The fuel charge was 9.79% in Q4 2021, and was only 5.66% when 2021 began.

I also recently had the opportunity to chat about fuel surcharges with Paul Ziobro over at the Wall Street Journal; give that article a read here for more on the topic and how fuel increases are affecting all transportation-based businesses: “Gas Price Surge Fuels Fights at FedEx, Uber Over Who Will Pay.”

It goes without saying that fuel prices – and the resulting shipping costs – will continue their rise as the war continues. Carriers will keep passing on the rising costs to shippers, who will then be faced with critical decisions around how much can be passed on to consumers without affecting their businesses. 

While there’s not much you can do to change the cost of fuel, having this knowledge at your fingertips is critically important as you budget out your shipping costs – and pricing of goods – for the rest of 2022. 

The Reveel App uses AI and machine learning to provide an unparalleled look into what’s impacting your bottom line. Through invoice audits, AI and Machine Learning technology, and rate modeling/simulations, you can see the health of your operation and assess pricing changes from parcel carriers like FedEx and UPS. Sign up for a free Reveel account today to see how you can leverage automation to synthesize your data, ship more for less, and reduce the time needed to identify issues and action items.

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