FedEx Corp. will boost its fuel surcharges in time for the holidays, with the new rates taking effect Nov. 2. At the current price of diesel gasoline, it appears the standard fuel surcharge on the FedEx Ground shipments that many online retailers use would go from 3.50% to 4.25%, an increase of 0.75%. .
FedEx increased the surcharge in February, as did UPS. UPS says it is not planning a fuel surcharge increase before the holiday season.
Online art dealer OverstockArt.com, No. 812 in the 2015 Internet Retailer Second 500 Guide, a FedEx client, faces an increase in its shipping costs of about 1% overall from the fuel surcharge increase, CEO David Sasson says. He says FedEx hasn’t spoken to him about the surcharge change.
OverstockArt.com offers free shipping and returns on all purchases and doesn’t plan to change its policy as a result of the fuel surcharge increase. Sasson says the business will recoup those added expenses elsewhere.
“In order to offset the future increase we are in the process of adjusting some of the prices for our frames,” he says. “This is significant, but not as damaging as what some other retailers with a lower AOV [average order value] are facing.”
Sasson says he previously met with his FedEx representative to ask for lower prices.
“We did not ask for the price reduction to offset their fuel surcharge increase, but we explained to them that as our volume has been growing it’s time to look at lowering prices,” he says. “From our experience, when negotiating with FedEx, it’s better to explain the requested discounts in terms that show the overall increase in revenues for them not an offset of a cost increase.” Sasson says his FedEx rep indicated he’d be able to get a discount but he’s unsure of just how deep of a discount he’ll be getting at this point.
The two 2015 fuel surcharge increases add up to a significant hike in e-retailers’ costs.
“With these increases announced during the same calendar year, FedEx has effectively increased Express and International rates by 2.5-5.75%,” says Brian Broadhurst, vice president of transportation solutions with transportation spend management consultancy Spend Management Experts. “FedEx Ground isn’t too far behind, with combined surcharge rates increasing by 0.5-4.5% between the February and November 2015 announcements.”
But Marc Wulfraat, founder and president of supply chain consulting firm MWPVL International, doubts the latest increase will have a big impact on online retailers. “It’s just a fact of life. People are going to have to adjust their shipping costs accordingly.” He contends web merchants will have to move away from free shipping as the major carriers steadily increase their rates.
Some retailers may consider alternatives to FedEx, Wulfraat says. “There’s probably going to be situations where volume is going to move away from FedEx to another carrier like UPS,” but plenty of companies fail to shop around on freight rates, he says.
At the start of 2015, UPS and FedEx raised their base prices by an average of 4.9% and introduced dimensional pricing, which is based on how much room packages take up in a vehicle. UPS executives in April reiterated previously disclosed plans to raise prices during peak periods, such as the pre-Christmas period, to cover the cost of added capacity for handling large volumes of parcels that online retailers ship to holiday shoppers.
FedEx did not return a request for comment on the fuel surcharge increases. Top500Guide.com data shows that FedEx is the shipping carrier for 307 retailers in the 2015 Internet Retailer Top 1,000 and UPS for 413.