Dive Brief:
- Elevated fuel surcharges and annual rate increases from FedEx and UPS resulted in another record-high quarter for ground delivery costs, according to the TD Cowen/AFS Freight Index released Tuesday.
- Per-package ground delivery rates in Q1 were 39.3% above the index's January 2018 baseline, exceeding previous forecasts. That percentage is expected to climb further to 42% in Q2 as diesel prices and associated fuel fees continue to pressure prices.
- Shippers also contended with differing discount activity from FedEx and UPS in Q1, per the index. FedEx deployed higher ground shipping discounts, while UPS discounts stalled and decreased for certain customer segments, said Mingshu Bates, AFS Logistics chief analytics officer and president of parcel, in an interview with Supply Chain Dive.
Ground shipping costs may rise further amid fuel pressures
Dive Insight:
Parcel shippers are scrambling for ways to stave off climbing rates and surcharges from FedEx and UPS. The two carriers are raising fuel fees as the Iran war and Strait of Hormuz disruptions impact oil supply, and Amazon and the U.S. Postal Service are following close behind.
Ground fuel surcharges rose 26.7% year over year in Q1, outpacing a 10% jump in diesel fuel prices. Relief isn’t expected in Q2, "as oil prices are unlikely to see near-term relief even if geopolitical tensions ease," per an index presentation.
Shippers large and small are paying increased attention to fuel surcharges as rates have escalated, Bates said. More of AFS' clients are requesting deeper looks at their recent fuel surcharge spend levels and working to anticipate how much more they may be charged in the future.
"Everybody is concerned about it and just trying to do some kind of modeling to predict their cost increase," Bates said.
Even before the Iran war, fuel surcharge pressures have been a thorn in shippers' sides, combining with other fees and escalating base rates to challenge transportation budgets. According to the index, a five-pound package shipped via ground from Atlanta to a New York City home is 41.8% more expensive this year than in 2022.
Cost increases aren't limited to ground-based shipments. The express parcel rate per package increased to 8.5% above the January 2018 baseline, and it is expected to jump further to 10.3% in Q2, a development also influenced by annual rate increases and rising fuel surcharges. March fuel surcharges were about 46% higher for express shipments than the levels seen in Q1 of 2025.
