Katerina Swanson
UPS and FedEx are two of the largest parcel shipping companies in the world, and their use of fuel has been a topic of interest for many. Both companies have been working to reduce their fuel consumption and carbon footprint by investing in alternative fuel vehicles. For example, UPS has announced the development of a custom electric delivery truck with a 100-mile range, while FedEx has introduced hydrogen fuel-cell delivery trucks. Despite these efforts, both companies still rely heavily on diesel fuel and have been criticised for their frequent fuel surcharge adjustments, which may not always correlate with the increase in fuel costs.
| Characteristics | Values |
|---|---|
| Fuel used | Diesel |
| Fuel surcharge | Exists |
| Fuel surcharge rate | Changes weekly |
| Fuel surcharge calculation | Based on the average monthly fuel price increase or decrease over the course of the year |
| Fuel surcharge impact | Raises the overall price |
| Fuel surcharge correlation | Little correlation between the increase in Fuel Costs and the increases in Fuel Surcharge |
| Fuel surcharge alternatives | FedEx and UPS are transitioning to electric and hybrid trucks |
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What You'll Learn
- UPS and FedEx use diesel fuel to calculate fuel surcharges
- Fuel surcharges are based on the weekly fuel price changes
- Fuel surcharges are added to import and export shipments
- FedEx and UPS are transitioning to hydrogen fuel-cell delivery trucks
- Fuel surcharges allow UPS and FedEx to keep their base shipping rate
UPS and FedEx use diesel fuel to calculate fuel surcharges
Fuel surcharges have been prevalent in the shipping industry since the 1973 oil crisis, when the Organization of Petroleum Exporting Countries (OPEC) initiated an oil embargo that caused a global economic shock. In response, the U.S. Department of Energy (DOE) began monitoring fuel prices, which laid the groundwork for the introduction of fuel surcharges to help transportation companies manage fuel costs.
UPS and FedEx are two well-known transportation companies that utilise diesel fuel and calculate fuel surcharges. Both companies base their weekly fuel surcharges on the National U.S. Average On-Highway Diesel Fuel Price, as reported by the U.S. Energy Information Agency (US EIA). They publish Fuel Index charts that list their weekly fuel surcharges based on diesel fuel price fluctuations. However, they frequently adjust these charts, leading to substantial increases in fuel surcharge percentages and costs over time.
The calculation of fuel surcharges involves several key variables. The first is the fuel base price, which is the benchmark price of fuel at the time of booking a shipment. This can be derived from national, regional, or daily fuel price averages. The second variable is truck fuel economy, which refers to the average fuel efficiency of the truck fleet, usually measured in miles per gallon (MPG). The MPG rate is crucial in determining the amount of fuel used per mile, directly influencing the surcharge. The third variable is the fuel price change, which accounts for the fluctuation in fuel prices from the base price at the time of booking to the actual time of transit.
While UPS and FedEx have standardised methods for calculating their fuel surcharges, there is significant variability across the industry. This lack of standardisation can create challenges for shippers working with multiple carriers, as each may have different methods for calculating and applying these charges. Additionally, other factors can influence fuel surcharges, such as specific route characteristics (urban vs. rural), the type of goods transported (affecting vehicle weight and fuel efficiency), and international factors like global oil market trends.
Fuel surcharges are applied differently depending on the type of freight and the carrier's operating territory. For example, freight carriers often calculate fuel surcharges based on the distance travelled, while parcel carriers like FedEx and UPS may apply a percentage markup on the shipment's sale price. These surcharges are then reflected in the customer's invoice, with the final price per gallon determined by the shipping company to ensure the most accurate pricing.
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Fuel surcharges are based on the weekly fuel price changes
UPS and FedEx publish Fuel Index charts with weekly surcharges based on fuel price changes. Fuel surcharges are designed to help protect carriers during times of high gasoline, diesel, and airplane fuel prices. The surcharge allows UPS and FedEx to keep their base shipping rates while making the necessary changes to cover any increase in fuel price. The fuel surcharge is applied to all rates and charges for linehaul transportation and other fuel-consuming services.
The fuel surcharge rate for FedEx Freight services is specified in Item 570 of the FXF 100 Series Rules Tariff. Changes to the FedEx fuel surcharge are applied weekly and are reflected on the FedEx invoice. The U.S. Department of Energy fuel index is updated on the first business day of each week, with the applicable surcharge taking effect on the following Wednesday. The fuel surcharge for FedEx Ground, FedEx Home Delivery, FedEx International Ground, and FedEx Freight is based on the on-highway index for the price of a gallon of diesel fuel.
For other FedEx services, the surcharge is based on the USGC index for the spot price per gallon of kerosene-type jet fuel. The fuel surcharge for UPS Ground Service is based on the National U.S. Average On-Highway Diesel Fuel Price. In March 2020, when the diesel fuel price was $3.85 per gallon, the UPS Ground Fuel Surcharge was 9.25%. Today, at the same fuel price, the UPS Fuel Surcharge has doubled to 18.5%. Similarly, the FedEx Ground Fuel Surcharge has increased to 18.75% at the same diesel fuel cost.
UPS and FedEx appear to be increasing their fuel surcharges more frequently, regardless of fuel price fluctuations. This has led to a substantial increase in Fuel Surcharge percentages and costs over time. While both companies publish Fuel Index charts, there appears to be little correlation between the increase in Fuel Costs and the increases in Fuel Surcharges.
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Fuel surcharges are added to import and export shipments
UPS and FedEx publish Fuel Index charts listing their weekly Fuel Surcharges, which are based on fluctuations in diesel fuel prices. These surcharges are added to import and export shipments, with the surcharge percentage determined by the average monthly fuel price increase or decrease over the year. This means that, despite the drop in fuel costs, the surcharge still exists, although the percentage has decreased.
The fuel surcharge allows UPS and FedEx to maintain their base shipping rate while accommodating necessary changes to cover any rise in fuel prices. For instance, instead of adjusting the standard shipping rate every month, they can simply add or reduce the fuel surcharge rate. This provides them with the flexibility to make changes to their pricing without altering the base shipping rate, which only occurs annually as per the current policy.
The fuel surcharge rates for FedEx Freight services are specified in Item 570 of the FXF 100 Series Rules Tariff. FedEx Ground, FedEx Home Delivery, FedEx International Ground, and FedEx Freight refer to the on-highway index for the price per gallon of diesel fuel. For other FedEx services, the USGC index is referenced for the spot price per gallon of kerosene-type jet fuel. The US Department of Energy updates the fuel index on the first business day of each week, and the applicable surcharge takes effect the following Wednesday.
UPS and FedEx have been criticised for increasing their fuel surcharges more frequently, regardless of whether fuel prices are rising or falling. This has led to a substantial increase in Fuel Surcharge percentages and costs over time, with little correlation between the increase in Fuel Costs and the rise in Fuel Surcharges. For example, in March 2020, when the National US Average On-Highway Diesel Fuel Price was $3.85 per gallon, the UPS Ground Fuel Surcharge was 9.25%. Today, at the same fuel price, UPS's Fuel Surcharge has doubled to 18.5%, while FedEx's is 18.75%—a 50% increase.
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FedEx and UPS are transitioning to hydrogen fuel-cell delivery trucks
While I cannot confirm whether UPS and FedEx use diesel fuel in their operations, I can tell you that both companies are transitioning to hydrogen fuel-cell delivery trucks.
FedEx's Hydrogen Fuel-Cell Trucks
FedEx has been testing hydrogen fuel-cell delivery trucks since at least 2018. The company has been working with Workhorse Group and Plug Power to develop these vehicles. The hydrogen fuel-cell delivery van has a range of 160 miles, which is an improvement over the 90-mile range of their electric battery-powered vehicles. The van has been delivering packages on a route in Albany, New York, for two months as of May 2018. If the pilot is successful, Workhorse and Plug Power will deliver an additional 19 hydrogen fuel-cell delivery vans, bringing the total fleet to 20.
UPS's Hydrogen Fuel-Cell Trucks
UPS has also been working on deploying hydrogen fuel-cell delivery trucks. In 2019, the company announced that it would begin testing a hydrogen fuel-cell truck in Sacramento, California, with plans to add more trucks in the state. The truck is equipped with a 32kW fuel cell built by Hydrogenics and coupled with 45kWh of battery storage and 10kg of hydrogen. The vehicle has the same route and range requirements as conventional fuel vehicles but emits no emissions. UPS has invested more than $750 million in alternative fuels and advanced technology vehicles and stations since 2009.
Benefits of Hydrogen Fuel-Cell Trucks
Hydrogen fuel-cell vehicles offer several benefits over electric vehicles, particularly for logistics providers. While both types of vehicles are zero-emission, increasing the range on hydrogen fuel-cell vehicles is as simple as adding an additional fuel cell. This is in contrast to electric vehicles, which can only travel as far as their electric charge range. Hydrogen fuel-cell vehicles also do not sacrifice any space inside the truck, which is critical for companies like FedEx to ensure they do not have to reduce their parcel volumes per truck.
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Fuel surcharges allow UPS and FedEx to keep their base shipping rate
UPS and FedEx publish Fuel Index charts that list their weekly Fuel Surcharges based on the Diesel Fuel Price fluctuations. However, there appears to be little correlation between the increase in Fuel Costs and the increases in Fuel Surcharges implemented by UPS and FedEx. For example, in March 2020, when the National U.S. Average On-Highway Diesel Fuel Price was $3.85 per gallon, the UPS Ground Fuel Surcharge was 9.25%. Today, at the same fuel price, UPS's Fuel Surcharge is 18.5%, double the cost. FedEx has also followed similar practices, with a Fuel Surcharge of 18.75% at the same $3.85 per gallon Diesel cost.
Both carriers have been increasing their Fuel Surcharges more frequently, regardless of whether the fuel price goes up or down. Fuel surcharges are applied to FedEx Freight shipments, FedEx Ground, FedEx Home Delivery, FedEx International Ground, and FedEx Freight, with reference to the on-highway index for the price of a gallon of diesel fuel. For other services, the USGC index is used for the spot price per gallon of kerosene-type jet fuel. FedEx express freight shipments that use a weight-based calculation are assessed on the billable weight of the shipment, which may include additional deficit weight.
In addition to fuel surcharges, UPS and FedEx use other fees to keep their base shipping price the same, such as residential and extended area surcharges and pickup charges. These additional fees have become the preferred method for shipping companies to maintain their revenue without changing the base price.
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Frequently asked questions
Yes, UPS and FedEx use diesel fuel for their delivery trucks. However, they are transitioning to more sustainable options, with UPS announcing the development of a custom electric delivery truck with a 100-mile range, and FedEx introducing hydrogen fuel-cell delivery trucks.
UPS and FedEx calculate their fuel surcharges based on the average monthly fuel price increase or decrease over the year. They publish Fuel Index charts that list their weekly Fuel Surcharges, which fluctuate with diesel fuel prices.
UPS and FedEx adjust their fuel surcharges weekly, and these changes are reflected in their Fuel Index charts. The surcharges are designed to protect carriers during periods of high fuel prices and allow them to maintain their base shipping rates.
No, the fuel surcharges do not apply to all services. For example, FedEx International Express Freight (IXF) and FedEx International Airport-to-Airport (ATA) services are exempt from these surcharges.
