Fuel Surcharge Compliance Exceeds 70 Percent

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A shipping survey released earlier this month found that the Feb. 1 fuel surcharges implemented by Federal Express Corp., Memphis, and Airborne Freight Corp., Seattle, were met with acceptance by the majority of shippers during the first quarter.


The Supply-Chain Indicator: First-Quarter 2000 Shippers Survey was conducted by Bear, Stearns & Co. Inc., New York, an investment banking and securities trading and brokerage firm. The company sent a survey to shipping managers at more than 1,000 domestic and international companies representing numerous industries. Forty-six percent of survey participants have transportation budgets exceeding $25 million, while 29 percent were responsible for transportation budgets of $10 million or less.


The survey found that 79 percent of FedEx customers paid some or all of the initial 3 percent surcharge, while 74 percent paid some or all of Airborne's 3 percent surcharge.


On Dec. 30, FedEx announced the 3 percent fuel surcharge, effective Feb. 1, to offset increasing fuel costs. At the time, FedEx indicated that rising fuel prices could increase expenses in fiscal year 2000 by more than $200 million compared to fiscal year 1999. FedEx pays approximately 83 cents per gallon for fuel, up from 51 cents a year ago. The company expects fuel costs to remain at 80 cents per gallon or higher during the next several months.


In March, FedEx added 1 percentage point to its 3 percent fuel surcharge on most domestic and international services, bringing the company's surcharge to 4 percent, effective April 1. The surcharge will extend through FedEx's fiscal year, which ends May 31, and possibly beyond.


Airborne Express -- a FedEx competitor that also implemented a 3 percent fuel surcharge in February on all domestic and international express services -- said it is concerned about high fuel prices in general.


The Bear, Stearns study also found that during the holidays, UPS Ground -- the Atlanta-based United Parcel Service's ground package delivery service -- was responsible for delivering 74 percent of the survey participants' business-to-consumer products, compared with only 14 percent for FedEx, 7 percent for U.S. Postal Service Priority Mail, 3 percent for UPS Deferred Air and 3 percent for Airborne.


The survey also asked shippers to compare their actual shipping activity level during the first quarter to their pre-2000 expectations. The study found that 18 percent of respondents shipped less freight than expected due to Y2K inventory buildup. However, 18 percent also shipped more than expected. Of the respondents that built up fourth-quarter inventories, 57 percent were from the automotive industry.


The survey also found that 56 percent of shippers "anticipate strong or very strong performance from the domestic economy over the next six months," said Ed Wolfe, a transportation analyst at Bear Stearns who prepared the study. "However, 78 percent and 73 percent of our respondents expect a price increase in domestic parcel and heavyweight air freight, respectively, in the next six months -- the largest such indication in two years."
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