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FedEx Ground hikes fuel surcharge 100 basis points, leapfrogging UPS

FedEx Ground, the ground-delivery arm of FedEx Corp., has raised its diesel fuel surcharge by 100 basis points to 16%, exceeding the fuel levy assessed earlier this month by rival UPS Inc.

The increase takes effect Monday. FedEx’s fuel surcharges apply to its base rates and to any add-on charges known as accessorials. 

UPS had hiked its levy 50 basis points to 15.25% but will reduce them to 15% effective this Monday. The carriers’ levies are based on the on-highway diesel prices set each week by the Department of Energy’s Energy Information Administration.

UPS (NYSE: UPS) and FedEx (NYSE: FDX) index their diesel levies to a band of prices established the week before by the EIA. FedEx Ground adjusts its surcharges for every 9 cents-a-gallon move in the EIA diesel price. For example, FedEx’s upcoming levy is based on an EIA-established price that is at least $4.09 a gallon but less than $4.18 a gallon. As of last Monday, the national price for diesel stood at $4.092 per gallon.

FedEx’s recent move comes amid an ongoing downward move in diesel pump prices. The most recent weekly on-highway diesel price was more than 11 cents a gallon higher nearly three weeks ago and more than 87 cents a gallon higher than a year ago.

In addition, FedEx will hike the fuel levy to 16.75% from 16.25% on domestic U.S. shipments moved by its FedEX Express air and international unit. The increase will also apply to FedEx Express shipments from the U.S. to Puerto Rico. U.S. air import and export levies will each decline by 50 basis points from the week before.

UPS, FedEx and other parcel delivery carriers have wide latitude as to when they adjust diesel and jet fuel surcharges. In recent years, surcharges have remained elevated despite world price fluctuations that have headed south. Analysts who follow the fuel surcharge market have said that surcharge levels stay higher long after prices have dropped, thus allowing the carriers to reap additional revenue on each transaction.

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