UPS Inc.’s international air shippers are about to see an increase in their jet fuel surcharges even though the price of fuel has dropped dramatically in the past couple of weeks.
Effective Dec. 5, UPS (NYSE: UPS) will increase fuel surcharges by 150 basis points, or 1.5%, on its U.S. air import and export services, which are composed of nine products. The increases, disclosed on UPS’ website, will be based on Gulf Coast jet fuel prices set by the U.S. Energy Information Administration (EIA) for the week of Nov. 28, UPS said.
UPS’ air export customers can expect to pay surcharges ranging from 21% to 24%, depending on next week’s EIA fuel price published on Nov. 30. Air import customers can expect to pay between 24.75% and 27.75%, again depending on next week’s EIA price.
The current jet fuel price is a little more than $3.14 a gallon, according to EIA data. The figure will be updated in two days.
UPS adjusts its air and ground fuel surcharges each week. Fuel surcharges are subject to change without notice. The international jet fuel levies are tacked on to 10 add-on fees, known as accessorial charges, that UPS applies to its delivery services.
UPS and chief rival FedEx Corp. (NYSE: FDX) index their fuel levies to a range of prices set by the EIA. UPS adjusts its jet fuel surcharges 25 bps for every 4 cents a gallon move in the EIA’s jet fuel price.
For example, one surcharge would apply if the EIA price is at least $3.11 a gallon but not more than $3.15. A higher surcharge would be imposed if the price was at least $3.15 per gallon but not more than $3.19.
FedEx, which in key air commerce regions like the Asia-Pacific boasts a larger footprint than UPS, hasn’t increased international jet fuel surcharges since April.
UPS’ move comes amid a significant drop in jet fuel prices, which have followed a similar decline as diesel prices. Both diesel and jet fuel are distillate products, and a price correlation exists between the two. Jet fuel prices had been steadily dropping since early July, according to EIA data. They spiked to more than $4.36 a gallon at the end of October, only to fall again since.
For a two-month period starting in late April, jet fuel prices either exceeded $4 a gallon or, in most other cases, hovered near that threshold.
Paul Yaussy, senior professional services consultant at Shipware LLC, said UPS has declared publicly that fuel surcharges are levers that could be pulled at any time to boost revenue. Conversely, had UPS not adjusted its fuel surcharge tables, revenue tied to the surcharge would decline along with weekly jet fuel prices, Yaussy said.
In the current situation, UPS is ensuring that international air fuel surcharges remain at current levels at least through the rest of the peak holiday shipping cycle, according to Yaussy.