The US peak parcel bill is being written by rate tables, not just diesel

Two numbers from the TD Cowen/AFS freight index, reported by Reuters on 26 October, set the tone for the American peak season: net ground parcel rates in the fourth quarter are forecast to rise 5.8 per cent year on year, and express 13.8 per cent. Both are records for an index built on anonymised data from 1,800 shippers and measured on what customers actually pay after fuel and other surcharges, not on list prices.

The fuel figure is easy to quote and easy to misread. The US Energy Information Administration put the national on-highway diesel average at $6.28 a gallon in the week to 19 October, roughly 65 per cent above the level of 28 February, before the joint US-Israeli strikes on Iran. Brent has gained close to 90 per cent this year, and the 26 October dip — WTI down 1.46 per cent, Brent down 0.78 per cent — was a pullback from a high, not a reversal. Morgan Stanley sees limited new diesel supply near term. The IEA's Fatih Birol said the same day that oil is unlikely to return to pre-conflict levels.

Yet fuel accounts for only about 30 per cent of the surcharge increase. The rest comes from rewritten tables. AFS Logistics chief analytics officer Mingshu Bates puts it plainly: in the first quarter of 2021, with diesel at $2.91 a gallon, the industry fuel surcharge was 7.75 per cent of base rate. Run today's tables against that same diesel price and the surcharge would be 23.75 per cent, roughly triple. That is the part shippers miss when they assume a surcharge will recede with the oil price. It will not, because the mechanism, not the commodity, has changed.

Applied to the 19 October diesel price, UPS sits at 29.5 per cent and FedEx at 29 per cent. Switching carriers is not the easy escape it looks. ShipMatrix president Satish Jindel notes that OnTrac's West Coast surcharge for the week to 25 October was also 29.5 per cent. USPS at about 8 per cent and Amazon Logistics at roughly 3.5 per cent are the genuine outliers, which is why retailers are steering volume their way. OnTrac, GoFo, UniUni, Jitsu and Veho together reach about 70 per cent of the US population, but splitting volume erodes the discounts that made the original rates work, and holiday routing is usually locked months ahead.

For an exporter selling into the US, this is a margin problem disguised as a freight problem. On a product retailing at $39.90 with $6 of last-mile cost, a 5.8 per cent ground increase adds about 35 cents a unit. For anyone selling a two-day promise, the 13.8 per cent express increase is worse, because speed is the product. And because surcharges key to the price calculation date rather than the order date, a mid-peak revision quietly wipes out a margin quoted in September.

Spread forecasts across two or three carriers so volume-based demand surcharges, which typically trigger above an agreed baseline, stay under the line. Push inventory into US warehouses and replenish by truckload instead of flying single parcels. Route returns to stores, since reverse logistics is now pure cost. Put a surcharge pass-through clause in every quote. UPS says its pricing reflects service quality and infrastructure investment; FedEx did not respond to a request for comment. Both report results this week. The window for negotiating is short — once peak surcharges are in force, there is nothing left to discuss.

Yufeng International Logistics combines first-leg ocean and air, US warehousing and last-mile delivery on its USA routes; lane-level quotes at sales@ruixincargo.com.

Sources: Based on reporting by Reuters (republished by Wallstreetcn and UAnalyze), the TD Cowen/AFS freight index, US Energy Information Administration diesel price data and public remarks by ShipMatrix.