Update: Airborne Latest to Add Fuel Surcharge
"During 1999, the cost of fuel needed to maintain regular operations increased significantly," said Airborne president Robert Brazier. "Airborne held off making any pricing adjustments in the hope that fuel prices would stabilize. Unfortunately, the continued high price of fuel forces us to implement this temporary surcharge."
Brazier said the company will continue monitoring fuel prices and will remove the surcharge when fuel costs return to historical levels.
The surcharge will apply to shipping charges only and will not affect the cost of other services such as cargo insurance, weekend deliveries or related services.
ABF spokesman Tom Brannigan said that the rates for Airborne@Home, a service the company announced in late May, will be exempt from the surcharge. The surcharge also will not be in lieu of a rate increase, but at press time no rate increase announcements have been made.
ABF is following FDX's announcement on Dec. 30 that it will apply a 3-percent fuel surcharge, effective Feb. 1, on Federal Express Corp's domestic and international services to offset fuel costs. FedEx is the air express unit of FDX Corp.
"We have held off on this decision in order to assist our customers in getting through their very important peak shipping season," said Alan B. Graf, Jr., executive vice president and chief financial officer at FDX Corp., in a statement. "Fuel costs remain high. In order to continue to provide the unmatched service and reliability which FedEx customers rely upon, the price of our services must appropriately reflect our increased costs."
The addition of a fuel surcharge is not surprising, however. Graf blamed higher fuel prices on FDX's lower-than-expected fiscal second quarter net income, which was announced last month, and speculated that FedEx may add a fuel surcharge to mitigate jet fuel prices.
He also said FDX's revised fuel forecast indicates that fuel prices could negatively impact expenses in fiscal year 2000 by more than $200 million compared with fiscal year 1999. FedEx is currently paying about 83 cents per gallon for fuel, up from 51 cents a year ago, and the company expects fuel costs to remain in the 80 cents or higher level for the next several months.
FedEx also will apply a surcharge of 10 cents per kilo to FedEx International Airport-to-Airport and FedEx International Express Freight shipments, also effective Feb. 1. The surcharge will apply to all shipments tendered within the United States and all U.S. export shipments, where legally permissible. The surcharge will extend through FedEx's fiscal year, which ends May 31, and possibly beyond.
FedEx spokesman Jesse Bunn said that FDX has not yet decided whether the company's fuel surcharge is in lieu of a regular price increase. He also said that FDX will probably announce rates this month or next. "But right now, the decision on our rate increases has not yet been made."
Meanwhile, United Parcel Service, Atlanta, FDX's chief competitor, said high fuel costs were a contributing factor to the 3.5 percent rate increases it announced for UPS Next Day Air, 2nd Day Air and 3-Day Select Commercial air express rates. Last year, rates for these products rose 2.5 percent. But high fuel prices "were not the driving force," said spokeswoman Susan Rosenberg. "We historically have been increasing rates at the end of the year ... we evaluate human resource costs, healthcare costs and overall operating costs every year and adjust our rates accordingly."
However, Rosenberg said it will not add a fuel-based surcharge this year to its package deliveries.
"In at least the last 20 years or so, we have not had a fuel surcharge," said Rosenberg. "And that has to do with how we manage our short-term and long-term fuel purchases. The efficiencies and effectiveness of our hedging operation has enabled us to ride out the peaks and valleys and moderate volatility in oil prices."
It is also expected that the U.S. Postal Service will file its request with the Postal Rate Commission for new, higher rates for all classes of mail this week. While there is still much speculation around what each increase will be will for each class of mail, insiders generally agree that rates will rise 4 percent to 6 percent across the board.