Spend Matters welcomes this guest article by Jim Haller, program director of transportation services at NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom and shipping.
FedEx recently reported record earnings for the third quarter of its 2015 fiscal year. This should come as no surprise for FedEx shippers, who have been hit with historically high rates as well as new dimensional weight pricing. But, while those pricing changes and increases made big headlines in 2014, there are several more seemingly “minor” changes that have flown under the radar…and they are also contributing to FedEx’s bottom line.
For example, let’s look at FedEx’s recent change to its fuel surcharge index. Under these changes, the fuel cost ranges specified in the carrier’s fuel surcharge index tables have widened, and the surcharges have increased. This has resulted in higher fuel surcharge costs for shippers, in addition to the cost impacts of the 2015 general rate increase and dimensional weight pricing.
Here is a snapshot of how this plays out:
FedEx Ground Fuel Surcharge
- Old index (before Feb. 2, 2015) – a gallon of diesel that costs between $2.47 and $2.59 was subjected to a 1.0% surcharge.
- New index – a gallon of diesel costing between $2.47 and $2.65 is now subjected to a 3.5% surcharge.
FedEx Air Fuel Surcharge
- Old index (before Feb 2, 2015) – a gallon of jet fuel that costs between $2.26 and $2.32 was subjected to a 4.5% surcharge.
- New index – a gallon of jet fuel that costs between $2.23 and $2.31 is now subjected to a 6.5% surcharge.
While these changes aren’t as attention grabbing as a general rate increase or a shift in pricing strategy, they do add up. FedEx reported revenues of $11.7 billion last quarter, up 4% from $11.3 billion during the previous year. While we can’t know the specific impact that the fuel surcharge index change had on Q3 revenues (the change was effective for only 1 month out of the quarter), we can assume the impact was positive and contributed to the carrier’s record performance. We can also assume that it will have a bigger impact on revenues in the months ahead.
Intermittent pricing, surcharge and accessorial fee “adjustments” have become standard operating procedure for major small parcel carriers like UPS and FedEx. These carriers have dozens of surcharges and accessorial fees, and 60+ ways to bill for value-added services and optional service fees. They can also increase many of these fees at any time without notice.
Whether you use FedEx, UPS, both or other alternatives, it’s important to conduct regular cost analysis and periodic contract optimization reviews with your carriers. The pace of carrier price and service level changes is accelerating as the efficacy of these changes as a mechanism for increasing carrier revenues. Keeping these costs in check, as well as to reduce shipping costs, requires an ongoing commitment to analyzing changes, evaluating the impacts they have on your business and optimizing carrier contracts to negate these impacts.