UPS Inc. will raise the levels of fuel surcharges that it imposes on most of its air and ground delivery customers.
Effective Jan. 3, surcharge levels on domestic air and ground services — including transborder shipments — will rise by between 8% and 10%, according to calculations from consultancy TransImpact LLC from information posted on UPS’ website. Surcharges on international air services will increase as well, according to the website notice.
UPS’ (NYSE: UPS) surcharges on diesel and air fuel apply to the company’s base rate and to any of 10 delivery surcharges that UPS can impose if it deems appropriate to do so.
The increase will be UPS’t third fuel surcharge hike in less than 8 months. The most recent was in mid-November. The first was over the summers.
UPS adjusts its fuel surcharge levels weekly based on price ranges set each Monday by the U.S. Energy Information Administration (EIA). For example, UPS currently imposes a 11% surcharge should the weekly national average price for a gallon of on-highway diesel fuel range between $3.62 and $3.73 a gallon. However, on Jan. 3 the surcharge will rise to 12% should on-highway diesel prices stay within that band, according to the UPS note.
As of the week of Dec. 27, national on-highway diesel prices averaged $3.61.5 per gallon, down slightly from the prior reporting week but up $1 a gallon from a year ago.
There is a two-week lag between EIA’s pricing changes and when they are reflected in UPS’ surcharges. For example, surcharge levels for the week of Dec. 27 will reflect the average diesel price for the week of Dec. 13. The same process is used to calculate the company’s U.S. air fuel surcharge, which is pegged to the U.S. Gulf Coast jet fuel price that EIA also tracks.
UPS said its ground delivery surcharge will not apply to packages originating in the lower 48 states and are subject to “retail rates,” which are typically higher than what regular UPS shippers would typically pay.
Branden Burt, director of operations for TransImpact, said UPS’ upcoming increase effectively wipes out the fuel surcharge cost advantage it had over rival FedEx Corp. (NYSE: FDX) for domestic services. The fuel surcharge on shipments moving via FedEx Ground, the company’s ground parcel delivery unit, is currently set at 11.75%. That may change, however, after EIA releases its most recent pricing late Monday. Like UPS, FedEx pegs its air and ground fuel surcharges on the EIA price bands.
FedEx’s fuel surcharges on U.S. import traffic are slightly lower than UPS,” according to Burt. UPS’ levies are slightly lower on U.S. exports, he said.
UPS’ surcharge adjustments come eight days after it put its 2022 rate changes into effect and less than two weeks before it levies new surcharges on four domestic services: Ground residential deliveries, shipments tendered for last-mile delivery by the U.S. Postal Service under UPS’ SurePost offering and two services for shipments requiring special handling and those the company classifies as “large” packages exceeding 96 inches in length or 130 inches in combined length and girth.
Heavier weighted and outsized shipments generally cannot be processed through UPS’ conveyor system and must be manually handled. This, in turn, increases the company’s costs of providing service.
All of the new surcharges take effect Jan. 16 and will remain in place until further notice, UPS said.
FedEx and UPS have modified their language used to describe their surcharges. Once known as “peak” surcharges, they are now referred to as “peak demand” levies. The change underscores that in a post-pandemic world with e-commerce orders permanently elevated, peak demand no longer knows a specific season such as the holidays. Rather, it has become a year-round phenomenon.
UPS’ 30 cents per parcel surcharge on eligible traffic moving under its SurePost service with the Postal Service will differ from a new $1 levy FedEx has imposed on all forward and return shipments with its new Ground Economy offering, which like SurePost targeted shippers of lightweight, low-value shipments that are very price sensitive. Once a heavy Postal Service user through a service called SmartPost, FedEx this year completed a multiyear effort to shift virtually all of that traffic into its own network.
How businesses will react to the FedEx pricing policy change is anyone’s guess. However, what seems clear is that FedEx needs to generate as much profitable revenue as it can to neutralize what has become a near yearlong spike in costs at its FedEx Ground unit due to staffing shortages, higher labor costs and network inefficiencies.
UPS, by contrast, has much of its labor costs locked in until 2023 through a five-year collective bargaining agreement with the Teamsters union that was ratified in 2018. UPS nonmanagement personnel are company employees, while FedEx drivers operate as independent contractors.
(Note: This story was updated to include the Dec. 27 prices set by the Energy Information Administration)