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What You Need to Know about UPS® Fuel Surcharges
Fuel surcharges add an element of unpredictability to every shipping invoice. Even when shippers know they're coming, the exact amount is too elusive to anticipate. This complicates cost controls and budget management.
Shippers find a small package fuel surcharge on just about every invoice, yet the fee changes week to week. Without a plan to stay ahead of these fluctuating costs, it could be difficult to stay ahead of your shipping budget. Here, we break down UPS® fuel surcharges to give you a greater understanding of where they come from and how they work. This knowledge can help shippers better plan for these costs and build a smarter budget.
If you want to master the ins and outs of your parcel shipping costs, keep reading for a breakdown of UPS fuel fees and what you can do about it.
What is the UPS fuel surcharge?
For protection against the fast fluctuations of the gasoline and diesel fuel market, carriers (not just UPS) tack a fuel surcharge onto invoices. These are calculated after the initial quote and apply to UPS's ground- and air-based parcel transportation services.
While your fuel surcharge will show up as a single line item on invoices, the total fee comes from multiple sources. The fuel surcharge covers fuel costs for transportation services (e.g., UPS® Ground or UPS Next Day Air®) and applicable transportation-related services provided by UPS. These include Delivery Charges, Pickup Charges, Remote/Extended Delivery and Pickup Charges, Residential Surcharge, Return Services with Pickup, Saturday Delivery and Pickup, Signature Required Services, Additional Handling, Large Package and Over Maximum Limits, Oversize Pallet Handling Surcharge and Peak Surcharges.
Calculating UPS parcel fuel surcharges
Many shippers wonder why UPS doesn't add fuel costs into the initial quote. The answer is simple: Fuel prices change too fast and frequently for UPS to know fuel costs for shipments that could be days or weeks away. Also, consider that some shipments change on-the-fly – UPS may need to add a fuel surcharge for Additional Handling, signature requirements or other required services left out at the time of booking.
The UPS fuel surcharge is a percentage-based cost calculated using the National U.S. Average On Highway Diesel Fuel Price, managed by the U.S. Energy Information Administration (EIA). Instead of calculating its fuel surcharge by EIA's exact fuel costs, UPS built a tier-based system that prescribes a surcharge based on fuel price ranges. Basically, the higher the "bracket" fuel prices fall within, the higher the surcharge percentage.
For those trying to nail down exact costs, there could be hope for at least some of your fast-moving shipments. UPS bases fuel surcharges on average fuel prices from two weeks before the shipment. So, if you're trying to find out UPS fuel surcharge fees for today's shipment, you could look up EIA's fuel costs1 from two weeks ago and get your exact surcharge percentage on UPS.com2.
Keep in mind that UPS uses different fuel price points for air transportation. Here, the U.S. Gulf Coast costs for jet fuel (also managed by the EIA) are the basis for fuel surcharges. UPS uses the same tier-based system for calculating fuel surcharges for air transportation, but the fuel surcharge percentages are different due to different price points of diesel and kerosene fuels, respectively.
How should shippers plan for a fuel surcharge?
Now that you know how UPS comes up with fuel surcharges, what can you do about it? Here are some ideas:
- Track UPS fuel surcharges. As we mentioned above, you can look up surcharges on your own and use that for shipments you're sending out right away. However, keep in mind that this won't account for any service-related fees UPS may add if the needs of your small package shipment change after booking.
- Bundle shipments. If you're regularly shipping to customers, see if they're okay with bigger shipments at less-frequent intervals. Shipping at greater weight usually means better rates, while fewer shipments mean less fuel consumption. Be sure to check out small package weight and size limits though to make sure you don't exceed the limit.
- Negotiate for discounts. If you have enough shipping volume, you have negotiating power with UPS to land discounts on fuel surcharges or other areas of your bill. However, small and mid-size businesses sometimes struggle here due to (relatively) smaller shipping volumes.
- Build better estimates. UPS posts a 90-Day Fuel Surcharge History on ups.com3. This may help you anticipate fuel surcharges for future shipments, albeit not with 100% accuracy.
Simplify your parcel shipping with us
These ideas will help with your planning, but they likely add some complexity to your small package shipping operations as well. If you're struggling to manage costs or stay a step ahead of your parcel logistics, consider a third-party logistics (3PL) partner like Worldwide Express. As a UPS Authorized Reseller, we know parcel shipping and how to manage UPS fees and surcharges like few others. We negotiate rates using the shipping volume of our entire customer base, but it's our hands-on support that gives SMB shippers the biggest lift. We'll walk through your parcel billing and invoices to look for efficiencies in your operations, help cut shipping costs and manage shipments with simplicity.
If you're looking for a way to do small package shipping better, let's talk.
1 National U.S. Average On Highway Diesel Fuel Price
2,3 UPS Fuel Surcharge