SHIPPING SHOCK: UPS and FedEx Fuel Surcharges Send Delivery Costs Soaring as Retailers Brace for Record Expenses
Americans could face higher online shopping costs this holiday season as UPS and FedEx impose steep fuel surcharges that are pushing package delivery expenses to unprecedented levels. With diesel prices soaring and major shipping companies changing the formulas used to calculate their fees, retailers are confronting another round of transportation cost increases just as the busiest shopping period of the year approaches.
Shipping expenses are expected to climb sharply during the final three months of 2026, when the number of packages moving through delivery networks can double as consumers place holiday orders. The increases are particularly significant for businesses that depend heavily on home deliveries and must decide whether to absorb the additional costs or pass them along to customers.
According to the TD Cowen/AFS Freight Index, the average cost of ground parcel delivery, including shipments associated with online retail purchases, is projected to rise 5.8% during the fourth quarter compared with the corresponding period in 2025.
The outlook is even more challenging for companies relying on expedited shipping services. Express parcel delivery prices are forecast to increase 13.8% from a year earlier, reflecting mounting pressure on businesses that promise customers rapid delivery.
The index draws on anonymized shipping information collected from approximately 1,800 businesses, including large retailers. Because the price of delivering an individual package depends on its dimensions, weight, destination, and service level, the analysis measures percentage changes rather than presenting a single nationwide shipping price.
“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 surge in transportation expenses comes amid a dramatic increase in diesel prices following the outbreak of the American and Israeli military campaign against Iran earlier this year.
Figures from the U.S. Energy Information Administration show that the average nationwide price of on-highway diesel reached $6.28 per gallon as of October 19. That represents an increase of approximately 65% since February 28, when the United States and Israel launched their attacks against Iran.
Higher diesel costs have placed significant pressure on transportation companies, which depend on fuel to operate the trucks and delivery vehicles moving millions of packages across the country.
However, industry analysts say the increase in fuel prices tells only part of the story. A substantial portion of the growing burden on retailers comes from changes UPS, FedEx, and other carriers have made to the way they calculate their fuel surcharges.
Bates estimated that the actual rise in diesel prices accounts for slightly less than 30% of the increase in fuel surcharge expenses. The remaining growth largely reflects changes in carrier pricing formulas that have caused surcharges to climb considerably faster than the underlying cost of fuel.
The result is that shipping companies can collect substantially higher fuel-related fees even when diesel prices remain unchanged or return to previous levels.
Data from the freight index illustrate the extent of the shift. During the first quarter of 2021, when diesel averaged $2.91 per gallon, the fuel surcharge represented 7.75% of the underlying shipping charge.
Under current pricing formulas, that same diesel price would produce a fuel surcharge of 23.75%, approximately three times the rate imposed five years earlier.
The comparison suggests that fuel surcharges have increasingly become a significant component of carrier revenue rather than simply a mechanism for recovering fluctuations in fuel expenses.
At the October 19 national diesel average of $6.28 per gallon, the published surcharge schedules of the two largest private parcel carriers indicate that UPS imposes a fuel surcharge of 29.5%, while FedEx charges 29%.
Those percentages are generally added to the applicable transportation charges, meaning the final delivery expense can be substantially higher than the advertised base rate.
UPS defended its overall pricing structure, maintaining that its rates reflect the quality of its premium delivery services and the substantial investments the company has made in transportation infrastructure and network capabilities.
FedEx did not immediately respond to a request for comment regarding the latest surcharge increases.
Both companies are scheduled to release quarterly financial results this week, and investors will be watching closely for indications that customers are resisting the higher charges or shifting shipments to competing delivery providers.
For major retailers, the timing is particularly difficult. The final quarter of the year represents the most important selling period for many businesses, and shipping costs can have a significant effect on profitability during the holiday shopping rush.
Jess Dankert, vice president of supply chain at the Retail Industry Leaders Association, described the holiday season as the retail industry’s “Super Bowl”, emphasizing the extensive preparation companies undertake throughout the year to manage the surge in consumer demand.
Dankert explained that fuel surcharges are among the issues retailers negotiate with shipping companies when establishing transportation contracts.
Businesses are also pursuing alternative strategies to reduce their delivery expenses, including encouraging customers to return online purchases at physical stores rather than shipping unwanted merchandise back through parcel networks.
Retailers have increasingly sought additional delivery partners as well, hoping that a more diversified transportation network will provide greater flexibility and reduce dependence on UPS and FedEx.
A growing group of regional and specialized delivery companies has expanded its operations in recent years, creating additional options for merchants seeking lower-cost alternatives.
Among the emerging competitors are OnTrac, GoFo, UniUni, Jitsu, and Veho, companies that collectively provide delivery coverage to approximately 70% of the American population.
Satish Jindel, president of ShipMatrix, a company specializing in parcel tracking and delivery management, said these alternative carriers have increased their capacity to accommodate higher shipment volumes during the approaching holiday season.
“They are getting adoption from many shippers looking to lower their transportation spend,” Jindel said.
Nevertheless, the smaller delivery companies are not necessarily immune from the same pricing pressures affecting the industry leaders.
OnTrac, for example, listed a fuel surcharge of 29.5% for West Coast shipments during the week ending October 25, matching the percentage charged by UPS under its published schedule.
That suggests retailers switching to regional carriers may still encounter substantial fuel-related fees, even if other elements of the delivery price are more competitive.
Another potential alternative is the United States Postal Service, which has historically operated under a different pricing structure from private package delivery companies.
The Postal Service introduced its first fuel surcharge in April, adding an 8% charge to most package shipments. Although the fee represented a departure from its previous pricing practices, it remained considerably below the fuel surcharges imposed by UPS and FedEx.
Amazon has also entered the picture as a potential alternative for businesses seeking to reduce fulfillment and delivery costs.
In April, the e-commerce giant introduced a 3.5% fuel and logistics surcharge on fulfillment fees charged to sellers using its distribution services.
Those comparatively lower percentages could make the Postal Service and Amazon attractive options for certain retailers, particularly businesses shipping large numbers of relatively small packages.
However, transportation analysts caution that changing delivery providers is considerably more complicated than simply selecting the company advertising the lowest surcharge.
Major retailers often negotiate discounts based on the total number of packages they ship through a particular carrier. Diverting too much business to competing companies can reduce shipment volume with an existing provider and jeopardize the discounts that made the original contract attractive.
In some circumstances, the loss of volume-based savings could offset or even exceed the benefits of switching to a carrier with lower fuel charges.
There are also practical difficulties associated with changing shipping arrangements during the holiday season. Retailers typically establish their delivery strategies months in advance, coordinating warehouse operations, staffing, inventory distribution, and customer delivery commitments.
Introducing new transportation partners late in the year can create operational disruptions and increase the risk of missed delivery deadlines during the busiest weeks of the shopping calendar.
Despite the growing number of competitors, analysts at JPMorgan believe UPS and FedEx are unlikely to lose their dominant positions in the parcel delivery market to Amazon or smaller regional carriers in the immediate future.
Additional carrier pricing information shows that fuel surcharges have risen substantially in recent months. FedEx’s published schedule lists a 29% surcharge for ground and home deliveries during the week beginning October 26, compared with 26% during the week beginning August 17. Its domestic express package surcharge for the current week is even higher, at 32.5%.
UPS has followed a similar pattern. Its published surcharge history shows that ground delivery fees reached 30.25% during the week beginning September 28, up from 25% in early July, before easing somewhat in October.
Both companies adjust their fuel surcharges weekly using government fuel-price benchmarks, although their formulas and thresholds differ. For ground shipments, the calculations generally follow the national average price of highway diesel, while air delivery surcharges are tied to jet fuel prices.
The carriers also reserve the ability to revise their surcharge tables, meaning that the percentage charged at a particular fuel price can change independently of the underlying cost of diesel. That flexibility has become a central concern for shipping customers seeking predictable transportation expenses.
UPS has also announced another adjustment to its domestic fuel surcharge structure effective November 2, just as the holiday shopping season moves into its busiest period. The company said the changes would apply to ground and domestic air shipments, with updated percentages reflected in its published schedules.
For retailers, the concern extends beyond the immediate increase in shipping bills. Fuel surcharges can affect decisions about minimum purchase requirements for free shipping, delivery promotions, and the profitability of smaller online orders.
Businesses offering free shipping must still pay the carrier, leaving them to absorb the additional expense through narrower profit margins, higher merchandise prices, or changes to their promotional policies.
Consumers may therefore encounter the effects of the increases in several ways, even when a retailer does not explicitly add a separate fuel charge at checkout.
{Matzav.com}
