E-Commerce companies, retailers and other businesses that need to ship packages this Holiday season beware! According to a recent article by Laura Stevens of the Wall Street Journal, a fuel-surcharge increase is taking effect this November 2, 2015, and it could have serious consequences for shippers and their customers.

Earlier this year in February, FedEx previously increased its fuel surcharges, following UPS’ lead. The companies claim that the driving force behind the surcharge increase is the higher expense associated with delivering heavier packages and the ever increasing number of residential deliveries, according to the article.

Interestingly, some business owners have not yet noticed that the fuel surcharges, which were once included in base rates, are now a separate charge. This means that just negotiating reduced base rates will not help mitigate these increases.

Complicating the matter is that diesel fuel costs have decreased substantially (35% down from last year), so why are market prices essentially going up? One might ask UPS and FedEx, ‘why are savings not being passed onto their customers?’ The article does make clear that carriers have been faced with the challenge of finding new ways to improve margins—perhaps this is their solution, at least in the short run.

In addition to the net impact on shippers, who depend on volume sales during the Holiday, Stevens writes that the increase could ‘jolt’ customers. With new surcharges, what will happen when fuel prices themselves go up again? That could be “double trouble.” With many companies building the expected costs of fuel/shipping into their process, they may need to increase costs or take a hit on margins.

Another interesting point brought up in the article is that both UPS and FedEx buy their fuel close to their actual need. Were they both more intent on buying spot futures, could they potentially find a way to further decrease fuel costs and pass savings to consumers?

We are left with many questions, one of which is “What’s next?”(quote from Brian Litchfield).

What fall out if any could UPS and FedEx experience downstream as they make these margin-making moves? How will business owners adapt to these surcharges? How will this impact how carrier rates are negotiated? How will business owners build this ‘volatility’ into their pricing to customers?

One thing is for sure: navigating through annual price increases and new and ever-increasing carrier surcharges has never been more important. The work of transportation and logistics consultants is vital to maintaining profitability for businesses and locking in the best possible shipping rates.

Original article:
http://www.wsj.com/articles/fuel-prices-fall-but-fedex-and-ups-boost-surcharges-1444088938

Original article:
http://www.wsj.com/articles/fuel-prices-fall-but-fedex-and-ups-boost-surcharges-1444088938