Fuel prices are currently at a six-year low and falling fast. A barrel of crude is about $48, down from $100 in September of last year. And on Monday, AAA reported the national average for a gallon of regular was $2.13, down 7¢ in just one week.
This price crash means big savings for the average American at the pump, but it also means businesses that use lots of fuel—like airlines, transportation services, and delivery companies—are seeing a windfall as well. Unfortunately, many have chosen not to pass those savings on to the consumers. How are they getting away with this?
Sometimes there’s a semblance of justification for fuel surcharges even at a time when fuel prices plummet. Allison Mac of the gas-tracking site GasBuddy told us via email that businesses are slow to change or drop fuel surcharges “because they need to be sure” that prices are going to stay low. Also, while drivers know how dramatically gas prices have decreased in recent months, they’re less aware that diesel fuel—used by delivery trucks, among others—has remained comparatively high. “The past couple of months we have seen gasoline dropping quickly and dramatically, but that is not the case for diesel,” Mac said.
Nonetheless, in many cases nowadays, it sure looks like the fuel surcharge is a blatant money grab. Here are some of the business categories where such surcharges are still in effect.
During the days of high gas prices in 2008 and 2011, many municipalities instituted a fuel surcharge for taxis to give cabbies some relief. It made sense at the time, but some cities have maintained the extra fee, and consumers aren’t too pleased about it.
Philadelphia is one city where a fuel surcharge is still in effect. The fee changes each month based on gas prices; it was 75¢ per trip in December. “What it was meant to establish was, basically, a permanent component in the medallion taxicab tariff which reflects fuel prices, no matter how low or how high they are,” said Jim Ney, director of Philadelphia Parking Authority’s Taxi and Limo division in an interview with CBS Philly. That hasn’t mollified riders very much. “We’ve gotten a few inquiries about it, that’s for sure,” Ney acknowledged.
In Chicago, cab rides carry an even larger $1 fuel surcharge. Drivers were initially unhappy with the newly permanent charge because it was seen at the time as too low. However, cabbies are likely singing a different tune now that they can reap the benefits of low fuel costs and higher fares.
Jet fuel prices have been slashed by at least one third over a recent 12-month span, yet with scant few exceptions airfares remain high, and airlines insist on tacking on fuel surcharges to many flights. Theoretically, such a fee—which can easily add $500 or more to the total cost of an international round trip—is instituted to help airlines cover their added expenses during periods when fuel is extraordinarily expensive. In practice, however, the surcharge is often simply a sneaky way for airlines to milk customers for more money without them really knowing what the fees are meant to cover.
As a recent Quartz article put it, fuel surcharges “don’t bear much relation to how much fuel actually costs,” and are instead just “arbitrary numbers that the industry adjusts to maximize their profits while staying competitive with other carriers.” In other words, airlines justify the tacking on of fuel surcharges because other airlines tack on fuel surcharges—and when they’re all on board with the scheme, it’s easy to get away with it because travelers don’t have anywhere else to turn.
Travel advocate Christopher Elliott has pointed out over the years that the airline industry originally said “it was adding a surcharge for the first checked bag to cover higher fuel costs, but when fuel prices dropped, it kept the fee.” Likewise, airlines are likely to keep on sticking passengers with fuel surcharges even as fuel prices drop. And the reason why they’re doing so is obvious: They make lots of money on surcharges—and they make even more when their costs are lower for what the surcharge is supposed to be covering (i.e., fuel).
Some relief could be in sight, however, starting with how one international carrier (Japan Airlines) decided it will cut its fuel surcharge as of February 1. Tim Winship of SmarterTravel.com and Frequent Flier applauded the way that Japan Airlines’ current fuel surcharge on flights between the U.S. and Japan ($259) will be scaled back to $173 each way, while pointing out that other airlines should do the “right thing” and decrease surcharges as well. Also, Winship wondered, “How low must fuel prices fall before the surcharges are eliminated altogether?”
Express Delivery Services
For the period stretching from January 5 to February 1, 2015, Federal Express is adding a 4.5% surcharge on express shipments and a 5.5% surcharge on ground deliveries. Why? For one thing, FedEx says it bases the surcharge on diesel fuel—most delivery trucks use diesel, after all—and diesel prices have dropped far more slowly than gasoline. What’s more, FedEx’s surcharges aren’t based on fuel prices from today, or even last week. “There is a two-month lag between the fuel price index and the fuel surcharge,” the company explains. “For example, the fuel surcharge for November 2012 is based on the September 2012 average spot price of fuel.”
Likewise, UPS tweaks its surcharge once a month, and its current surcharge rates are even higher than FedEx’s: 6.5% for ground shipments, and 7% for air and international packages.
Again, because moving trucks generally run on diesel, and diesel fuel remains fairly expensive, many moving companies are still tacking fuel surcharges onto customer bills. Atlas Van Lines, for instance, has a surcharge of 12% in effect through January 14 for moving household goods. After that, the surcharge drops to 8% to reflect the decreasing price of diesel fuel.
Online supermarket FreshDirect has a fuel surcharge that changes with the price of gas. But like FedEx, that surcharge hasn’t kept up with the current price of fuel. According to the company’s website, there should be no surcharge if retail gas prices fall below $3.01. Fill out an order, though, and you’ll notice FreshDirect is still charging a 38¢ fuel fee—something that should only happen if gas prices hit $3.26. FreshDirect did not immediately respond to requests for comment, but it’s safe to assume they’re based gas prices on some time in the past. That and the very low cost of the fee makes it more forgivable.
FreshDirect responded, saying their fuel surcharge is based on the retail price of diesel fuel, which has not declined in price as quickly as gasoline.