The most expensive parcel shipping year on record is on track to end with the highest holiday delivery prices ever recorded, Reuters reported, as diesel driven fuel surcharges from UPS and FedEx lift costs for United States retailers into the fourth quarter peak. Ground delivery pricing for the quarter is expected to run 5.8 percent higher than a year earlier, and express parcel pricing 13.8 percent higher, according to the TD Cowen and AFS Freight Index, which analyses anonymised data from about 1,800 shippers.
The fuel leg is only part of the increase. The United States average on highway diesel price was 6.28 dollars a gallon as of October 19, according to the Energy Information Administration, up 65 percent since the United States and Israel attacked Iran on February 28. At that diesel price the UPS fuel surcharge stands at 29.5 percent and the FedEx surcharge at 29 percent. But AFS Logistics chief analytics officer Mingshu Bates told Reuters that diesel price increases account for just under 30 percent of the fuel surcharge cost, because changes to how the carriers calculate the surcharges have raised them far faster than fuel itself, and they now rise even when fuel prices do not.
The index makes the formula change concrete. When diesel was 2.91 dollars a gallon in the first quarter of 2021, the index fuel surcharge was 7.75 percent of the base rate. At the same diesel price today, the surcharge would be 23.75 percent, roughly three times higher, according to the index. Supply Chain Dive reported the same index on October 16 projecting the ground parcel rate per package to reach an all time high in the fourth quarter, after a third quarter in which lower surcharges and renewed discounting had given shippers temporary relief.
For retailers the timing is the problem. Holiday package volume can double in the fourth quarter, alternatives such as the Postal Service, Amazon’s network and regional carriers now apply their own fees, and switching networks late can cost more in lost discounts and complexity than it saves. Diesel at 6.28 dollars is therefore reaching consumers twice, once in the surcharge formula and once in the formula changes the high price environment allowed carriers to lock in.