Will The Carriers Pass On Savings From Today's Low Oil Prices? Probably Not, And Here's Why.

Author: Rich Harkey
January 14, 2016

It’s a bummer that by now we’re all used to near-constant price increases from FedEx and UPS. Just last February, UPS announced it would be increasing their fuel surcharge indices, despite a barrel of crude oil being at a near 10-year low. Well, as of today, a barrel of US crude oil has hit a 12-year low, briefly trading at $29.93 before stabilizing at around $30.20 (WTI). One would hope that these rock-bottom fuel prices would mean savings passed on from the carrier to the shipper, but sadly, that hasn’t been the case.

The price of a barrel of US crude was $50.58 (WTI Spot Price FOB) in February, 2015 when UPS announced its 5.66% (average) increase of fuel surcharge indices. This increase applied to all service levels, despite fuel prices having dropped 50% since February 2014. And what did this increase mean for UPS? An additional $200 million in incremental revenue with no additional operational costs. So with fuel prices where they are today, it’s hard to blame the carriers for not passing on the savings, as it means easy added revenue and extra padded margins.

Although the trend appeared to be declining fuel surcharges throughout the year, fuel surcharge costs were 0.5% higher (on average) than they would have been had the carriers not adjusted their indices. Will the carriers increase their indices again this year? Who knows! But either way, it doesn’t look like they’ll be passing along any of those savings on to shippers.

No matter if the carriers increase their indices or not, there are many negotiable points on your carrier contracts that can help save you money. By renegotiating your carrier contract you can seek out discounts and incentives in certain areas that may offset common carrier price increases, be them annual or not.

Regardless of how you approach your negotiation, thoughtful research and a well put together game plan is crucial. Knowing how to speak the carriers’ language and knowing where to push (and where not to) can make all the difference. Leveling the playing field through carrier contract negotiation is tough, be sure to come prepared or seek help from a 3rd party firm, like us!

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