FedEx to hike fuel surcharges for second time in nine months

FedEx Corp. will raise fuel surcharges Nov. 2 on shipments moving via its air and ground parcel services, the second time in nine months the company will hike its surcharges during a protracted period of declining oil and fuel prices.

The increases will vary depending on the prevailing prices of jet and diesel fuel. For example, if the price of jet fuel is $1.39 a gallon, which is equal to the most current market price of $1.389 a gallon, the current 1-percent surcharge will increase to 2.5 percent, according to data from Shipware LLC, a consultancy. If the price of diesel fuel is at $2.56 a gallon, slightly above the most current average price of $2.49 a gallon, surcharges will increase to 4.5 percent from 3.5 percent, according to Shipware data.

The increases will apply to all FedEx Express and Ground customers except for those that have specific fuel-surcharge tables incorporated into their contracts.

The Department of Energy's Energy Information Administration (EIA) sets weekly prices for diesel fuel, and monthly prices for jet fuel. According to EIA data, a gallon of jet fuel in August 2014 was priced, on average, at $2.83. In the third week of September 2015, the average price of a gallon of diesel stood at slightly less than $3.78, according to EIA data.

In February, FedEx Express raised fuel surcharges by 4 percent on its Express products, which cover air and international services. At that time, the Memphis-based giant raised surcharges on ground services by 3.5 percent. The latter increase covers shipments moving via FedEx Ground, FedEx Home Delivery, and FedEx's "SmartPost" service, managed in conjunction with the U.S. Postal Service. Under the SmartPost service, FedEx tenders parcels to USPS for "last-mile" deliveries to customer residences. By law, USPS must serve every U.S. address.

Jess Bunn, a FedEx spokesman, said that due to the rapid growth of e-commerce, the company is handling more residential deliveries, which results in an increase in the number of delivery stops and distance between those stops. This, in turn, adds to the company's fuel and operational costs, and justifies the increase in fuel surcharges, according to Bunn.

Another factor is an increase in the size and weight of the typical package handled by FedEx Ground, Bunn said. This affects the unit's operating costs and fuel consumption, he added. All of the trends have been accelerating during the past year, he said.

For several years, archrival UPS Inc. has imposed higher fuel surcharges, and has collected more surcharge revenue as a result. FedEx's surcharge increases in February were designed to narrow the gap. However, UPS at the time raised its surcharges by roughly the same amount, keeping the differential with FedEx in place.

Rob Martinez, Shipware's president and CEO, said in an analysis of the FedEx move that it will still maintain a slight cost advantage over UPS as long as fuel prices remain low and UPS doesn't adjust its own index again. However, the surcharges will essentially be on equal footing should jet-fuel prices rise above $1.50 a gallon and diesel climb above $2.84 a gallon, Martinez said.