Rising fuel surcharges causing trouble for E-Commerce

October 8, 2015 Ken Klaver

Earlier this week the Wall Street Journal reported that FedEx Corporation is planning to increase its fuel surcharge for the second time this year, this time just in the build-up to the holiday shopping season.

Shipping costs from The package-delivery company will rise from around $67 to $170 for the transport of 100 shoe boxes overnight from New York to Atlanta, a significant blow to e-commerce, retail and shipping firms that rely on fast delivery to meet the customer experience expectations. 

The increase, which takes effect Nov. 2. is the second in a year. FedEx raised the fuel-surcharge index in February, after rival UPS  similarly raised prices, increasing its own cost to ship 100 shoe boxes to around $200.

Lower Fuel Prices

The increase of fuel surcharges caught shippers completely off guard, mainly because fuel costs have been falling. The price of diesel fuel, which FedEx uses in its trucks, has plunged by about a third over the past year.

Spot prices for jet kerosene, which power FedEx's airplanes, have fallen by nearly half to about $1.37 a gallon, according to the U.S. Energy Information Administration.

Rising Freight Spend

According to FoodLogistics, the rising fuel surcharges are due to an increase in residential deliveries, which are more expensive. This is a factor that could impact the e-commerce business disproportionately, which many observers believe will be a big part of the economy.

The food and beverage e-commerce business is still in its early phases. Food companies active in the e-commerce space will have to pass on higher costs to customers. The costs will be even higher once the fuel prices rebound.

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