By Lisa Baertlein
LOS ANGELES, Oct 26 (Reuters) - The most expensive parcel shipping year on record is on track to end with the highest-ever holiday season delivery prices as soaring diesel prices drive even higher fuel surcharge rates from UPS and FedEx, boosting costs for retailers.
Holiday-related package volume can double during the fourth quarter, when pricing for ground deliveries, including e-commerce purchases, is expected to be 5.8% higher than the same period last year, according to the TD
Cowen/AFS Freight Index.
Pricing for speedier express parcel deliveries is forecast to jump 13.8% from the fourth quarter of 2025, according to the index, which analyzes anonymized data from 1,800 shippers including major retailers. The index reports percentage change rather than dollar amounts because parcel costs vary based on weight, size and destination.
"Fuel is front and center in everybody's consideration and, again, no real good news there," said Mingshu Bates, chief analytics officer at AFS Logistics.
The US average on-highway diesel price was $6.28 per gallon as of October 19, according to the Energy Information Administration, up 65% since the US and Israel attacked Iran on February 28.
CHANGES TO CARRIERS' CALCULATIONS BOOST COSTS
But diesel price increases account for just under 30% of the fuel surcharge cost, Bates said. Surcharges driven by changes to how industry leaders such as UPS and FedEx calculate them are rising far faster than fuel prices — and go up even when fuel prices do not, she said.
For example, when diesel was $2.91 per gallon in the first quarter of 2021, the index fuel surcharge was 7.75% of the base shipping rate. Even if diesel returned to that price, the fuel surcharge now would be 23.75%, roughly three times higher, according to the index. That reflects how changes in fuel surcharge calculations are raising carriers' revenue and driving up retailers' costs.
Based on company surcharge tables at the EIA's average diesel price of $6.28, UPS' fuel surcharge is 29.5% and FedEx's is 29%.
UPS said its pricing reflects its premium service and infrastructure investments. FedEx did not immediately comment. The companies will report quarterly earnings this week and investors are keen to learn if customers are pushing back on surcharges.
Fast-growing delivery firms, including OnTrac, GoFo, UniUni, Jitsu and Veho, cover some 70% of the US population and have added capacity to handle more volume during the holiday season, said Satish Jindel, president of ShipMatrix, a delivery tracking and management firm.
"They are getting adoption from many shippers looking to lower their transportation spend," Jindel said.
Nevertheless, some of those companies have also adopted hefty fuel surcharges. OnTrac's West Coast surcharge is 29.5% for the week ending October 25, according to the company's publicly available surcharge table.
Retailers and other delivery customers could save money by shifting their business to the US Postal Service or to Amazon.com's logistics arm. The heavily regulated USPS imposed its first fuel surcharge of 8% on most packages in April, the same month Amazon began adding a 3.5% fuel and logistics-related surcharge to sellers' fulfillment fees.
Switching deliveries between companies can bring downsides, analysts said. Splitting deliveries between firms can nullify any savings based on volume and holiday delivery plans are set months ahead, making late changes difficult, they said.
To that end, JPMorgan analysts said it is unlikely Amazon will soon break UPS and FedEx's grip on the market.
(Reporting by Lisa Baertlein;Editing by Rod Nickel)
