Fuel Surcharges Push Parcel Costs to Record Highs, Opening a Door for Amazon
- 2 days ago
- 2 min read
Steep fuel surcharges from FedEx and UPS, combined with shrinking ground shipping discounts, drove delivery prices to record levels for shippers in Q2, according to the TD Cowen/AFS Freight Index. The ground parcel rate hit 42.4% above its January 2018 baseline, up 6.9% year over year. It's expected to ease slightly to 38.7% in Q3 as seasonal trends kick in, but that would still mark a 5.2% year-over-year increase, putting 2026 on pace to be the most expensive year per package on record.
The spike traces back to the Iran war and Strait of Hormuz disruptions, which pushed diesel prices higher and drove the average net fuel surcharge per package up 40% year over year in Q2. Because FedEx and UPS frequently adjust their fuel fee formulas, the index warns that elevated surcharge revenue will likely persist even after diesel prices fall. At $4.50 per gallon diesel, Ground fuel surcharges now run 24.5% to 25%, up from 22.5% a year ago.
Shippers also saw a slight decline in discount levels in Q2 versus the prior quarter, though AFS Logistics' Mingshu Bates noted carriers are still incentivizing small and medium customers while tightening discounts for larger clients.
As costs climb with FedEx and UPS, Amazon Supply Chain Services — including Amazon Shipping — is emerging as a more attractive alternative, having offered competitive rates and surcharge waivers this year to win market share. The index says Amazon's near-term scale may be limited, but its long-term pricing pressure on FedEx and UPS could be significant, especially in residential and small-to-medium business segments where Amazon has strong network density.
Express parcel rates are climbing too, driven by fuel surcharges, higher billed weights, and increased use of premium services. The express rate index reached a record 15.5% above its January 2018 baseline in Q2 and is projected to rise to 15.8% in Q3.
