PARCEL May/June 2022

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SUPPLYCHAINSUCCESS

Figure 2

LIQUID GOLD: THE RISING COSTS OF FUEL By Keegan Leisz

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nderstanding the dynamic nature of parcel costs can be a daunting task that can take years to truly comprehend. Fuel surcharges, however, seem to be conceptually understood by all. This can be deceptive. While fuel may seem like it should be straightforward, there are three dynamic variables that impact fuel costs. With fuel prices skyrocketing, it’s important for shippers to understand these variables, how those have changed over time, and how they will impact their fuel surcharge. Fuel Prices The first area that impacts the carrier’s fuel surcharge is often the most impactful: fuel prices. US carriers will typically use average fuel prices that are published by the Energy Information Agency. The EIA publishes both weekly and monthly averages of the fuel prices. Although some carriers still utilize monthly averages, most domestic carriers have transitioned in recent years to

leveraging weekly averages to realize changes in fuel prices more quickly. Figure 1 displays what the historical fuel prices look like for the indices utilized by FedEx and UPS. These indices are used to determine the Ground (National – On-Highway Diesel) and Express (National – Jet Fuel) fuel surcharges through March 14, 2022. As evidenced here, fuel prices have increased to record highs for diesel, and close to record highs for jet fuel. Even without further changes to the fuel surcharge calculation, this would lead to an increase in fuel surcharge costs for shippers. Unfortunately, there have been other changes that compound this price spike. Carrier Fuel Tables The second variable that Figure 1

8 PARCELindustry.com  MAY-JUNE 2022

impacts fuel surcharges is the carrier fuel table. These fuel tables have bands of fuel prices that convert the fuel prices into a rate. For UPS and FedEx, this rate is a percentage that is applied to transportation rates as well as other select surcharges. Figure 2 shows a snapshot of the FedEx Ground fuel table that was in place from November 1, 2021, to April 3, 2022. These fuel tables are designed so that when fuel prices go up, so does the surcharge. Conventional wisdom might suggest that these tables would stay relatively static, but that is not the case. Using the fuel prices as of March 14, 2022 ($5.25 for diesel, $3.48 for jet fuel) as well as the fuel prices for the same time during 2021 ($3.19 for diesel, $1.73 for jet fuel), Figure 3 shows what the surcharge would have been since 2012 using the FedEx fuel tables in place at that time. We can also take the fuel prices from Figure 1 and the fuel tables that were in place at the time to map out the actual historical fuel surcharges, as seen in Figure 4. There are a few interesting things worth noting from each graph: 1. Changes to the fuel