Carriers Try to Control Costs as Fuel Prices Soar

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The major package delivery services said this week that they are having no trouble keeping costs down during the recent rise in gasoline prices.


While the increase is affecting consumers, companies that deliver packaged goods daily to consumers and businesses for direct marketers are taking the fuel crisis in stride, saying that because they had prepared for the increase, customers do not have to worry about rising costs for now.


Over the past few months, U.S. consumers and businesses have seen gasoline prices soar. Last month, for example, gasoline was up 55 cents a gallon from a year earlier, based on the U.S. Energy Information Administration's weekly survey of 800 service stations. The national average price in June was $1.66 a gallon.


FedEx, Memphis, TN, said that although rising fuel prices increased expenses by $84 million during the fourth quarter and $273 million during the full fiscal year, those costs were offset by revenue from a 3 percent fuel surcharge that the company added in February and increased to 4 percent in April.


United Parcel Service, Atlanta, said high fuel costs contributed to the 3.5 percent rate increases it implemented in February for UPS Next Day Air, 2nd Day Air and 3-Day Select Commercial air express rates. But high fuel prices "were not the driving force," said UPS spokeswoman Susan Rosenberg.


She also said UPS has no plans to add a fuel surcharge.


"We are still monitoring what's happening with fuel prices, but our approach -- which is short-term and long-term hedging -- meets requirements for us to keep our operating costs in check, and we can manage any variabilities right now with fuel prices," Rosenberg said.


The U.S. Postal Service, Washington, said it cannot add a fuel surcharge or raise its rates to offset rising fuel costs but is still trying to improve its cost efficiency.


"Every time the price of gas goes up a penny, it costs the postal service about $1.2 million per year," said Marguerite Downey, alternative fuel project manager at the USPS. "But unlike many other companies, we cannot simply pass those extra costs on to our customers. So we have to find other ways to conserve costs."


One way is to use vehicles that can run on compressed natural gas, which, in some cases, costs $1 less per gallon than gasoline. The USPS has more than 8,500 such vehicles in its fleet.


"We're trying to use them as much as possible, and I expect we'll increase the use even more," Downey said.


The USPS started using the compressed natural gas vehicles a few years ago, not only because it was less costly than gasoline, but also because natural gas burns more cleanly.


Downey also said the agency is preparing for any future fuel crises by diversifying the fuels and types of vehicles the agency uses. For example, the USPS is relying more on electric vehicles and ethanol flex-dual vehicles, which can operate on any combination of ethanol and gasoline in the same tank. Both alternatives are cheaper than gasoline.


All three carriers said they were pleased that the crisis may be easing. Saudi Arabia said this week that it intends to put 500,000 additional barrels of oil on the market every day to try to lower prices.


"It appears right now that there is a light at the end of the tunnel," said UPS' Rosenberg.
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