Fuel prices fall but fuel surcharges remain

Flexible fees applied by shippers and airlines are less expensive—and less risky—than purchasing fuel hedges, and most companies have no plans to give them up.

Corporate managers hoping for some relief from fuel surcharges now that oil prices have collapsed can forget it.

The added fees have become standard operating procedure in a number of industries and are here to stay.

Indeed, Morningstar equity analyst Keith Schoonmaker said that the implementation of fuel surcharges, which allow corporations to pass energy costs on to customers, has worked well for airlines, trucking and distribution companies over the past three to four years.

Analysts say the surcharges played a vital role in keeping these businesses alive as oil prices soared to record levels this summer. In fact, Mr. Schoonmaker said in the case of the trucking industry, “It’s really the difference between the relative health of these firms and catastrophe.”

Take FedEx for example. Despite paying an average jet fuel price that was 77% higher than in the previous year, the company managed to post an 8% gain in revenue for its fiscal first quarter in 2009. That’s an 8% increase from last year. Net income, however, did drop to $384 million from $494 million.

By implementing an effective fuel surcharge program, FedEx was able to remain profitable. Fuel surcharges can help produce “a benefit once the fuel prices have leveled off or even decline,” Mr. Schoonmaker said, “so FedEx, UPS and DHL will all have a benefit during these days of declining fuel prices.”

Full Story...........