FedEx Corp. is raising its fuel surcharge for the second time this year, jolting e-commerce companies, retailers and other shippers with price increases as they gear up for the make-or-break holiday sales season.
The latest increase, which takes effect Nov. 2, is catching customers off guard because the company’s fuel costs have been falling.
The price of diesel fuel, which Fed Ex uses in its trucks, has plunged by about a third over the past year. Spot prices for jet kerosene, which power FedEx’s airplanes, have fallen by nearly half to about $1.37 a gallon, according to the U.S. Energy Information Administration.
The company says its latest increase is in response to heavier packages and a rise in residential deliveries, which use up more fuel.
Both FedEx and rival United Parcel Service Inc. reported fuel costs were down about 35 percent from the year earlier in their most recent quarter. The two delivery companies buy most of their fuel at near market prices.
The increase would add about $170 to the bill for shipping 100 shoeboxes overnight from New York to Atlanta, up from the $67 added by the current surcharge.
The figures, from an analysis by supply-chain consulting firm Spend Management Experts, are based on FedEx’s published rates and the August average fuel price.
UPS’s surcharge would add about $200 to the cost of shipping the same 100 shoeboxes, the analysis found.
The package-delivery company previously boosted its fuel-surcharge index in February, after a similar increase by UPS.
FedEx disclosed its latest surcharge-index increase without fanfare on its website late last month, and it hasn’t been popular.
“There’s no justification for it because there’s just no explaining it, other than they’re paying a whole heck of a lot less for fuel, and they don’t want to pass any fuel savings along to their customers,” said John Haber, chief executive of Spend Management Experts.
“It’s frustrating,” said Sara Henderson, founder of e-commerce startup BOGO Bowl, which ships as many as 30 packages of 20- to 60-pound bags of pet food each week, primarily via UPS.
“They give you discounts for being a regular shipper, but they seem to make it up in other ways by putting all these little fees here and there,” she said.
For Des Moines, Iowa-based BOGO Bowl, like other companies that offer free shipping, every penny counts. It builds shipping costs into the prices it charges customers, so unanticipated increases eat into its margins.
FedEx and UPS have been scrambling to boost profits as their customers shift to e-mail for sending urgent documents, instead of paying a premium to overnight them.
Though e-commerce has taken off, margins on that business are narrower because of the higher costs of making deliveries to scattered homes.
The two companies have been raising prices to cover these costs, charging by package size, instead of weight alone, and raising fees for giant packages.
A FedEx spokesman said the trend toward heavier packages and more residential deliveries has “been accelerating during the past year.”
A UPS spokeswoman said in an e-mail that the company “maintains a (fuel surcharge) level necessary to reduce price volatility and ensure that revenue is properly aligned with our cost of service.”
Consultants who work with shipping customers say most of them have yet to notice the quiet change in FedEx’s fuel-surcharge index, and they worry about the precedent it sets.
“It’s a bad sign for shippers across the board,” said Brian Litchfield, executive director of Atlanta-based Transpend Solutions, which helps shippers manage transportation expenses. “If the market is going to bear a fuel surcharge increase when fuel’s at its lowest levels in years, what’s next?”
