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Fuel Surcharges…They’re still Here!

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We tend to associate fuel surcharges with airlines but they are a very convenient concept for big business across the board. The shipping industry is a major user of the concept. Businesses get to separate the surcharges from their core pricing, and tack them on as a bait and switch at the end. Not only that, but they also tend to be very ‘sticky’. Oil prices are around $45 a barrel right now, down from $147 in July, but big surcharges are still being charged all over the shop, and passed on down the supply chain, ultimately to the consumer.

I recently ordered a product online, and had to pay a “fuel surcharge” for shipping. Never seen that trick before, but it might have something to do with a surcharge trick from, say, UPS. UPS make a big hoo-hah about green vehicles, but diesel fuel is still their staple, and right now it’s a nice earner for them too. All figures are from the UPS website.

Let’s start with the good news.

UPS recently changed the fuel surcharge to its customers for ground shipping. From November 3rd through November 30, 2008, the surcharge was 8.25%, triggered, according to UPS, by an average diesel fuel price of between $3.98 and $4.05 per gallon. On December 1, 2008 the surcharge went down to 6.75%, triggered says UPS by a diesel price of between $3.50 and $3.58 per gallon.

These numbers seem a little high to you?

Well,  US Energy Information Administration figures suggest UPS accidentally got its numbers wrong.

Between November 3 and November 30 the government estimate for average diesel prices was $2.88. At December 1st, the average price fell to $2.61, and is still falling. UPS says its surcharge doesn’t trigger at all until the average diesel price reaches $2.94, so by its own reckoning, and using government figures for this period it should not have been charging a surcharge at all.

What could account for the discrepancy?  It’s in the UPS website small print, of course.

“The surcharge will be based on the National U.S. Average On Highway Diesel Fuel Prices reported by the U.S. Department of Energy for the month that is two months prior to the adjustment.”

That’s a very convenient time lag when prices are going down. One can only hope the same ruling is in place when prices are going up.

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Written by coolrebel

December 12, 2008 at 2:26 pm

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