Tracking landed supply chain costs is an increasingly complex process and more costly every day, and the general rate increases of 2022 are still fresh in the minds of supply chain professionals. However, another cost seemingly comes from nowhere—fuel surcharges. In recent months, the on-highway diesel fuel price has risen significantly. According to the U.S. Energy Information Agency (EIA), the average cost of diesel has risen $1.143 over its pricing as of February 14, 2022. The already-stretched supply is wearing thin, and carriers try to keep the freight flowing without emptying shippers' pockets. However, higher fuel costs inevitably mean more supply chain costs, and additionally, there is a new UPS fuel surcharge to consider.
The fuel surcharge took effect on February 21, 2022, according to UPS. Shippers with an existing UPS account number will see the surcharge on their next weekly bill, but those that do not routinely use UPS will see the charge listed in the shipping and supply chain costs at the time of service and payment. The full breakdown of the new UPS surcharge is as follows:
While these surcharges might not seem like significant indicators of current supply chain costs, they actually signal tightening capacity and rising overhead for carriers. For instance, the fuel surcharge for Ground service was 11% on November 29, 2021, meaning its current rate is 1.5% higher, which amounts to a 1.5% increase in the cost of shipping through UPS. Over time, those smaller surcharge differences add up to massive changes in the landed costs of freight.
For example, a shipper with a transportation spend of $1 million will effectively see a $15,000 increase in total supply chain costs deriving solely from this latest charge. Obviously, the November value was well within the peak season months. Another factor to consider is the changing blends of diesel available may exacerbate pressure at the pump.
Remember that much like the unleaded-fueled automobiles people drive to work, there is a summer and winter difference in the blending of diesel. Still, the typical costs are higher in the summer months, so it wouldn't necessarily be surprising to see rates continue to increase as limited supplies continue as well.
The short answer is that shippers cannot stop UPS from changing the fuel surcharge. It will happen and coincide with the EIA's most recent prices report. As a result, higher fuel costs in the current week will mean a rise in the UPS surcharge in approximately two weeks. For that reason, shippers should:
The writing is already on the wall for the next round of fuel surcharges. The most recent EIA report on fuel costs was released on February 22, 2022, indicating another $0.036 weekly increase in on-highway diesel rates for the U.S. Fortunately, shippers that take the time to understand the changing fuel surcharges and account for their total impact on transportation spend will better plan transportation and keep landed supply chain costs in check. Intelligent Audit can help your team achieve that very goal and gain more insight into all activities and spending patterns with a single source of truth for logistics data. Connect with an expert in transportation spend and optimization at Intelligent Audit to get started.
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