US parcel shipping costs are on course for a third consecutive record quarter as major carriers continue to layer fuel surcharges on top of already elevated general rate increases, according to a new market report from TD Cowen and AFS Logistics.
The report says the sharp increase in crude oil prices linked to the Iran war has pushed both air and ground parcel costs higher, with no quick relief in sight. Even if oil prices retreat, the structure of parcel fuel surcharge mechanisms means shipping costs are unlikely to fall as fast as fuel itself.
AFS Logistics chief executive Andy Dyer said businesses should prepare for what he described as a “new normal” of elevated fuel costs. He noted that the structural drivers behind the spike take time to unwind, while parcel pricing mechanisms tend to be sticky, leaving shippers exposed to higher costs even after market conditions improve.
Fuel surcharges are calculated as percentage-based add-ons linked to fuel indexes. As fuel prices rise, surcharges climb. But when fuel prices fall, minimum thresholds often keep those surcharges elevated.
FedEx and UPS have long relied on fuel surcharge tables to pass through rising diesel and jet fuel costs, while also using them as an important source of revenue. According to the TD Cowen/AFS Freight Index, diesel prices rose around 10% year on year in the first quarter, but ground fuel surcharges jumped 26.7%.
Other carriers are now following suit. Amazon is introducing a 3.5% fuel surcharge on fees merchants pay for shipments handled through Amazon Logistics, while the US Postal Service will implement an 8% transportation surcharge from 26 April to recover direct fuel expenses and contractor pass-through costs. Regional carrier OnTrac has also revised its surcharge tables in response to the fuel spike.
AFS said carriers have used fuel surcharges for years as a powerful revenue lever, often keeping them high even in periods of relatively low fuel prices. With oil prices now dominating headlines, the market is primed to accept fuel as a major cost driver, leaving carriers with little reason to ease off that strategy.
The cumulative effect of fuel surcharges and annual rate increases has pushed parcel shipping costs far above the pace of inflation. The report notes that a five-pound package shipped by ground from Atlanta to a residential address in New York City cost $22.52 in 2022, compared with $31.94 in 2026 — a rise of 42%, versus cumulative inflation of just 15% over the same period. The fuel surcharge alone increased by 131% over those four years.
Express delivery costs also came in above forecast in the first quarter, reaching 8.5% above the January 2018 baseline and 2.6% higher than in the previous quarter. TD Cowen and AFS expect the express parcel index to climb further in the second quarter, reaching a record 10.3%, up 6.4% year on year.
Ground parcel costs are following a similar pattern. The ground parcel index reached 39.3% in the first quarter and is forecast to hit a new high of 42% in the current quarter, up 1.9% sequentially and 6.6% from a year earlier.
The report also notes that surcharge structures are not always applied evenly. Larger shippers often have the leverage to negotiate concessions that smaller customers cannot. FedEx is using deeper discounts to win additional volume, while UPS is applying tighter pricing discipline.
UPS revised its fuel surcharge index table for the third time this year, effective 13 April. While the new table does not increase surcharges at current diesel prices, logistics specialists say it is structured to decline more slowly if fuel prices fall, meaning shippers could pay more than they would have under the old formula.
Industry observers point out that even if carriers received fuel for free, the minimum surcharge thresholds now in place would still leave many shippers paying significant extra fees on every shipment.
