There are three items that factor into every parcel package. First, the transportation charge, which is determined by package weight, distance from origin to destination, and the service level utilized. Next, the extra fees, known as accessorials are added – sometimes being applied after the shipment is in progress. Finally, and perhaps the least talked about contributor, is the fuel surcharge. The fuel surcharge can be the smallest portion of the overall cost of a parcel, but as long as it is applied to every one of your packages, should remain an important factor to take into account. This article will provide a more in-depth look into how the major parcel carriers calculate the fuel surcharge, and tips for how you can reduce your spend in this category.
The basics: UPS and FedEx use the fuel surcharge to remain profitable in midst of fluctuating fuel costs. Both carriers utilize the national average fuel price (published by the US Department of Energy) to determine the fuel surcharge percentage for that week. Although fuel prices are subject to volatility, both UPS and FedEx have implemented fuel price range indexes which correspond to fuel surcharge percentages. These ranges protect the shipper from seeing an astronomical increase in fuel expenses, but also ensure carrier margins do not nose-dive in case fuel costs plummet.
How fuel surcharge is calculated:
1. Calculate the net charge of your shipment (rate after discount).
2. Add any qualifying accessorial fees (as noted on the lists below) to the net charge.
3. Multiply that total (net charge + qualifying accessorials) by the fuel surcharge percentage. Take note on whether your package is Ground, Air, or Intl. – fuel surcharge percentage will vary based on service level.
Fuel surcharge formula: Net Charge + Any qualifying accessorials * Fuel Surcharge Percentage.
Qualifying Accessorial Fees - Here’s a list of the qualifying accessorials that are factored into the Fuel Surcharge calculation:
FedEx Ground:
- Residential surcharge
- Delivery area surcharge
- Oversize packages
- Unauthorized oversize packages
- On-call pickup/return on-call pickup
- Call tag
- Northern Canada Surcharge
FedEx Express:
- Residential pick-up/delivery
- Delivery area surcharge
- Oversize package
- Extended service area pickup/delivery
- Intl. out of pickup/delivery area
- Metro service area pickup/delivery
- Delivery reattempt
- Courier pickup
- Return on-call pickup
- Saturday pickup/delivery
- Broker select option fee
UPS Ground, Air, Intl.:
- Delivery Charges
- Pickup Charges
- Remote/Extended Delivery and Pickup Charges
- Residential Surcharge
- Return Services w/ Pickup
- Saturday Delivery and Pickup
- Signature Required Services
- Additional Handling, Large Package, and Over Max Limits
- Oversize Pallet
Here’s a quick example:
$75.00 (published charge)
25% (discount)
=
$41.25 (net charge)
+
$4.40 (residential fee - qualifying accessorial)
+
$2.80 (delivery area surcharge - qualifying accessorial)
=
$48.45 (net charge + qualifying accessorial fees)
x
7.0% (fuel surcharge percentage)
=
$3.39 (fuel surcharge)
Last but not least - Tips to help reduce your fuel surcharge spend:
1. Everything in your carrier agreement is negotiable, including discounts on fuel. Consider factoring fuel incentives into your next procurement event with the carrier.
2. Along the same lines, if certain accessorial fees affect the fuel surcharge, then negotiating additional discounts on those surcharges (for example: Residential Delivery/Delivery Area Surcharge), will decrease your fuel costs.
3. Reduce the frequency of surcharges for which fuel surcharge applies.
4. Keep up to date with changes the carriers make regarding fuel. Or - subscribe to Empact industry updates emails and let us do the research for you.
Summary: At Empact Parcel, we specialize in helping high-volume UPS/FedEx small package shippers drive down their costs not only through fuel expenses, but many other facets of their shipping profile. Our analytical tools allow for the breakdown of charges into the most granular detail, which in turn gives the information needed to identify areas of over-spend and cut costs.
Contact us today if you have any questions regarding your parcel program, accessorials, or fuel expenses at support@empactparcel.com.
We will perform a review of your account, for free.