UPS shrinks lag time between fuel surcharges

UPS Inc. said Monday that changes to its diesel and jet fuel surcharges will now be subject to a one-week lag from the federal government’s prices instead of a two-week lag, a move that matches the surcharge policy of archrival FedEx Corp.

Under UPS’ (NYSE: UPS) new directive, its fuel surcharges for the week starting March 21 will be based on the price that was set this past Monday by the Energy Information Administration. Based on the EIA price and UPS’ revised surcharge formula, the company’s diesel fuel levy will reach about 15.25% as of this Monday. That will match the surcharge now in place on FedEx’s (NYSE: FDX) ground-delivery services.

UPS’ move comes as the national average for a gallon of on-highway diesel fuel spiked on Monday to a record $5.25, a 41 cent week-over-week jump. Over the past two weeks, diesel prices have climbed an astounding $1.15 a gallon. UPS and FedEx (NYSE: FDX) are playing catch-up with soaring fuel prices. UPS, which increasingly relies on fuel surcharges to hit its revenue targets, does not want to miss an opportunity to capture surcharges based on the higher prices. 

A UPS spokesman said the change “allows us to more quickly align the costs we incur for fuel to serve our customers.” 

Surcharges at both firms are subject to change without notice and are imposed on the shippers’ base rate and most of the add-on fees known in the trade as accessorials.

UPS adjusts its diesel surcharge by 25 basis points based on 12-cent-a-gallon ranges in the EIA price. For example, the company imposes a 14.50% fuel levy if diesel prices are no less than $4.82 a gallon but no more than $4.94 a gallon. The surcharge rises 25 basis points if prices are no less than $4.94 and no more than $5.06 a gallon.

UPS’ online diesel fuel table does not go above $5.06 a gallon. FedEx’s table does, however. FedEx adjusts its diesel surcharges in 9-cent-a-gallon increments. Based on Monday’s EIA index, users of FedEx Ground can expect to pay a surcharge of 16.25% effective next Monday.

EIA will report its next weekly jet fuel price on Wednesday. The most recent price, published last Wednesday, was $3.71 a gallon. Domestic and international users of the carriers’ domestic and international air services could be in for significant pain depending on what the new EIA numbers show.

For example, domestic users of FedEx Express, FedEx’s air and international unit, currently pay a 15.25% surcharge based on prices in effect March 4, when jet fuel was priced at $3.58 a gallon. Users of the unit’s U.S. export services pay an 18.50% surcharge, while U.S. import users pay a 21.25% surcharge. Both of these levies were based on March 4 EIA prices.

Source: Freightwaves - UPS shrinks lag time between fuel surcharges
Editor: Mark Solomon