UPS Increases Fuel Index Grid: How Will Fuel Surcharges Impact Transportation Spend?

Transportation spend is increasing, worsened by tightening shipping capacity and changing fuel costs. According to the U.S. Energy Information Administration (EIA), the national average diesel price has reached $3.364 per gallon. That is up $0.937 from $2.427 in July 2020. The approaching peak season and possible regulatory changes on the horizon are pushing carriers to rethink their fuel surcharges. Now, increasing fuel surcharges is nothing new. However, UPS has announced new fuel surcharges effective August 16, 2021, and shippers need to know how they'll affect shipping spend.

What Fuel Surcharges Are Going Into Effect

The fuel surcharges largely depend on the range of local fuel costs. Surcharges range from 7.75% for diesel costs of less than $2.66 per gallon to 10.75% for diesel costs of $3.98 to $4.10 per gallon. Here is the full breakdown of ranges:

The fuel surcharges are based on the National U.S. Average On Highway Diesel Fuel Price for the week of July 26, 2021. It's equally important to recognize that these surcharges are not finite. They will be subject to change as fuel costs evolve over time based on the weekly report from two-weeks prior. Additionally, the charges affect these services:

  • UPS Ground®
  • UPS® Ground With Freight Pricing
  • UPS Hundredweight Ground Service
  • UPS® Standard Services
  • UPS SurePost®
  • UPS® Basic

However, this specific series of surcharges does not affect UPS Ground packages originating from within the 48 contiguous states when those packages are already subject to retail rates. The rates apply to all transportation charges and to top accessorial costs, including:

  • Additional Handling
  • Delivery Charges
  • Large Package and Over Maximum Limits
  • Oversize Pallet Handling Surcharge
  • Pickup Charges
  • Remote/Extended Delivery and Pickup Charges
  • Residential Surcharge
  • Return Services w/ Pickup
  • Saturday Delivery and Pickup
  • Signature Required Services

Most importantly, the new fuel surcharges also apply to Peak Surcharges assessed by UPS. As a result, transportation costs will increase across the board for all shippers.

Intelligent Audit Estimates a 0.75-1% Net Increase

Shipping costs are complex. They vary based on the unique needs associated with each package. Parcel carriers like UPS consider the stop-and-go nature of final-mile service in assessing fuel costs across their networks. This means all services become subject to the risk of wasted fuel due to the final mile, which is the most expensive leg of transportation, where "the cost of providing last-mile services accounts for 41% of overall supply chain costs.This is more than double any other category of spend, such as parceling or warehousing," according to a recent Capgemini report.

It is further evidence of the full-service lineup that will be subject to the surcharges. Based on the historic and projected trends of fuel costs, Intelligent Audit estimates the total impact to transportation spend at 0.75-1%. While that may seem minimal, consider this: a 1% increase in transportation spend of $1 million amounts to a $10,000 added expense.

What You Need to Do Next

The mounting pressure to reduce costs is absolute. Shippers need to act now by tracking costs by mode, zone, surcharges, and more. Tracking the actual costs, projections and top key performance indicators will help shippers monitor and control landed costs. That is critical to knowing when to consider other fulfillment options, such as zone skipping or hub injection, as well as using alternative carriers. Learn more about how Intelligent Audit can help your team overcome the complexity of fluctuating surcharges by connecting with our team of world-class logistics analytics experts today.

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