How Does Your Parcel Contract Hold Up In the Current Market?
As you have undoubtedly noticed, fuel prices have remained elevated since the initial dramatic increase in March. This increase is creating issues for the average consumer and business alike.
However, while many businesses are struggling to adjust to the high cost of fuel, parcel carriers are enjoying incredible profits.
In fact, parcel carriers have begun to apply significant fuel surcharge fees to shipments that may far exceed the higher cost associated with the spike in fuel prices. For example, UPS and FedEx both published new higher fuel surcharge schedules in April, averaging an increase of 10%, another hidden fee that benefits carriers’ bottom lines.
If you are beginning to feel that your current parcel contract is unsustainable, read on to find out how Redwood Logistics Parcel services can help you today.
The Current State of Fuel Prices
As of July 18, average gas prices across the country reached $4.49/gallon. One of the biggest factors keeping fuel prices high is the ongoing war in Eastern Europe. As the war has continued for longer than many expectations, the rest of the world has felt the effects in terms of gasoline price increases.
Not to be outdone, diesel fuel is at $5.43/gallon. With diesel being one of the primary fuel sources used in transporting goods throughout the nation, this poses serious profit-related issues for those who rely on shipping goods as a part of their business.
These rising prices have left nearly everyone wondering, “when will it end?”
Many experts have attempted to predict when fuel prices may drop again. However, the complicated, interconnected world in which we live makes it very hard to make a precise determination on this matter. With regards to inflation and the issues related to fuel, we may all have to wait for quite some time to see the numbers at the pump drop down to a more reasonable level.
Parcel Contracts for Shipping Goods in 2022
Carrier giants UPS and FedEx have steadily increased their fuel surcharge fees since the start of the year. Furthermore, these extra fees vary widely based on whether the goods are traveling by land or air.
From looking at the numbers in UPS’s first quarter earnings, we can see that the carrier was able to realize increased revenue, even in the face of smaller shipping volume. UPS and FedEx are adding bottom-line profit through their fuel surcharge program. You, the shipper, are paying more per package so the carriers can maintain their record profits.
It’s understandable that carriers would need to make up some ground after the recent increase in gas and oil prices. However, we assert that these increased fees should be proportional to the increased cost of transporting goods.
Estimated Carrier Profits
Per our calculations, we estimate that carriers spend roughly $715.00 on fuel for the average shipment of goods. As a result of their fuel surcharge fees alone, they stand to make about $5,500 per shipment. This profit margin is incredible for the carriers and devastating for the businesses having to pay the fuel surcharge fees.
Worse yet, the fuel surcharge percentage is now being applied to both freight costs and the other surcharges. Once again, the carriers seem to be making outstanding profits while businesses suffer the consequences of higher fuel prices.
How Redwood Logistics Can Help Businesses
With our free Parcel Check-Up service, we can help you control the high cost of shipping. This service can help to show you how your contract stacks up against some of your competitors and others in the field.
If your parcel contract is hindering your ability to make the profit you desire, reach out to Redwood Logistics now. We can help you navigate this tricky time so that you can continue to deliver your quality products to your customers.