BUSINESS

Fedex Hikes Fuel Surcharge Despite Still-Low Gas Prices

11/02/2015 11:58 EST | Updated 11/02/2016 05:12 EDT
Gas prices are still near their lowest level in years, but that's not stopping Fedex from raising fuel surcharges to customers when certain types of parcels are delivered.

Starting Monday, the shipping company will charge customers a higher fee for certain packages delivered via certain means.

Under the old regime, a Fedex Express customer in Canada would pay a 7.75 per cent fuel surcharge for a domestic delivery and a 0.75 per cent charge for international delivery.

As a result of the new guidelines:

- The domestic fee stays the same but the international fee jumps to 2.75 per cent.

- A Fedex Ground customer formerly would have paid a 3.5 per cent fuel surcharge, but starting Monday that fee jumps to 4.25 per cent.

- Fedex Freight, which is the part of the business that deals with delivering huge container-loads of goods, will also now have higher fuel surcharges. Shipments of up to 9,999 pounds used to pay an 11.9 per cent surcharge, and loads of 10,000 pounds or more would pay an extra 24 per cent. As of today, those surcharges will jump to 14.3 per cent and 25.5 per cent.

It's the second time this year that Fedex has moved to raise its fuel surcharges. Rival UPS has done the same.

Complex issue

Cheaper fuel prices are a double-edged sword for package deliverers, as fuel such as diesel for delivery trucks and jet fuel for planes are some of the company's biggest expenses.

But Fedex said last month that its fuel costs were rising because it was delivering more heavy packages — which require more fuel to deliver — and more overall deliveries to residences, which have higher fuel costs than those to depots or businesses because they are more spread out.

In its last quarterly earnings, Fedex said all in all, fuel costs had a "slightly negative net impact to operating income" last quarter.

The hike in fuel surcharges comes just ahead of a key time for shipping companies, as package deliveries peak before the holiday season.

In many cases, those who have packages delivered to them won't bear the cost of the higher fuel fees directly. But retailers who promise customers free shipping on goods right up until Christmas will have to pay the new higher fees to live up to those promises. That's likely to filter down to prices if the surcharges stick around for any length of time.

Fedex rival UPS says it expects to deliver about 630 million packages across the U.S. between Thanksgiving and New Year's Eve, an increase of about 10 per cent from last year's level.

Fedex is expecting a similar spike to 317 million pieces, which is 12 per cent more packages delivered this holiday season than last year.