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Pushing the Envelope Blog

Where is the Love from Low Fuel Prices?

Date: 03/03/15 | Category: Mail Processing & Transportation

If you’re a shipper, you may have noticed your fuel surcharge fees aren’t going down in step with the declining price of oil. That’s because both FedEx and UPS tie their fuel surcharges to the price of diesel, which hasn’t dropped as far or as fast as gasoline prices. Furthermore, both shipping giants recently adjusted how they calculate fuel surcharges, resulting in surcharges that won’t drop as much as they would have under the previous calculation. In some cases, fuel surcharges are even going up.

Fuel surcharges are common in the transport industry, from taxis and airlines to moving and delivery companies. Many of these industries instituted fuel surcharges to smooth out costs when fuel prices were skyrocketing. But in times of low fuel prices, like now, customers see these surcharges as a blatant money-grab.

Right about now, you may be noting the U.S. Postal Service doesn’t have a fuel surcharge. It also didn’t go all in on dimensional weight pricing (See our previous blog). And it’s not likely to chase the next big thing in pricing: “surge” or “peak” pricing. For the 2015 holiday season, UPS said it plans to follow the Uber model and hit shippers with “peak” prices on its busiest days. This comes after UPS said it experienced higher-than-anticipated 2014 peak season expenses. FedEx is expected to follow suit. For consumers, this could mean the end of free shipping, at least on last-minute orders around the holidays.

So, the Postal Service might look even more attractive these days with its relatively straightforward, consistent pricing. Of course, the Postal Service isn’t a public company, so it’s not under the same pressure to deliver profits as UPS and FedEx are. But customers are not too interested in the whys and wherefores – they just want low-priced, reliable, fast delivery.

Do you think the Postal Service is well-positioned to lure away commercial package business from FedEx and UPS? Does the lack of a fuel surcharge put the Postal Service at any kind of a competitive disadvantage? Or is it only advantageous? Do you see the Uber surge or peak pricing model getting a foothold in other industries? 

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Anonymous
Reply
Aug 10, 2016
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Isn't a big reason fuel surcharges are not going down is because these companies enter multi-year contracts with refiners guaranteeing a fixed price?
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Tom
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Mar 5, 2015
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Fuel prices won't drop, for a while oil companies are storing crude to keep prices higher at the pump. This allows them to keep pumping the more expensive shale from North Dakota and Canada. When their storage facilities in Cushing Oklahoma fills up, expect to see fuel prices go down
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Mr. Obvious
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Mar 3, 2015
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What part of capitalism requires companies to reduce prices because of lower fuel costs? Companies are motivated by profits not fairness. The strong survive, the weak get what they deserve.
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LTS
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Mar 3, 2015
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I appreciate that Uber has disrupted the taxi industry and injected some much-needed competition into it, which only benefits consumers. But the move to the Uber model of surge pricing in other industries is disappointing. Consumers are already squeezed in so many ways ("convenience" fees, fuel surcharges etc.), now arbitrary surge pricing can be tacked on at the supplier or provider's discretion. We hear a lot of talk about the empowered customer, but the customer doesn't hold many cards if a duopoly of providers in a particular industry or industries decide to charge the same price and apply the same new fees to their services. As a postal stakeholder, I suspect the USPS is leaving money on the table by not following suit and charging DIM weight and fuel surcharges, but as a consumer, I am thankful. Hopefully, the USPS can continue to serve as a price ceiling of sorts that UPS and FedEx have to respect or risk losing business to.
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Bill
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Mar 3, 2015
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Until gas gets back to where it was on Jan 20th, 2009 ($1.80 nation wide per gallon). There will be no love.We have the potential to do it, we don't have the administration that wants fossil fuel, period, so they want the cost to be high. POTUS has so much as said so. Gas prices drive everything in the economy.
  
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Anonymous
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Mar 9, 2015
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gas prices
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