Elevated fuel surcharges and annual rate increases from FedEx and UPS resulted in another record-high quarter for ground delivery costs, according to the TD Cowen/AFS Freight Index released Tuesday. Per-package ground delivery rates in Q1 were 39.3% above the index's January 2018 baseline, exceeding previous forecasts. That percentage is expected to climb further to 42% in Q2 as diesel prices and associated fuel fees continue to pressure prices. Shippers also contended with differing discount activity from FedEx and UPS in Q1; FedEx deployed higher ground shipping discounts, while UPS discounts stalled and decreased for certain customer segments.
The two carriers are raising fuel fees as the Iran war and Strait of Hormuz disruptions impact oil supply, and Amazon and the U.S. Postal Service are following close behind. Ground fuel surcharges rose 26.7% year over year in Q1, outpacing a 10% jump in diesel fuel prices. Relief is not expected in Q2, "as oil prices are unlikely to see near-term relief even if geopolitical tensions ease," per the index presentation. Mingshu Bates, AFS Logistics chief analytics officer and president of parcel, said: "Everybody is concerned about it and just trying to do some kind of modeling to predict their cost increase."
According to the index, a five-pound package shipped via ground from Atlanta to a New York City home is 41.8% more expensive this year than in 2022. Cost increases are not limited to ground shipments; the express parcel rate per package increased to 8.5% above the January 2018 baseline and is expected to jump further to 10.3% in Q2. March fuel surcharges were about 46% higher for express shipments than the levels seen in Q1 of 2025. Even before the Iran war, fuel surcharge pressures had been a thorn in shippers' sides, combining with other fees and escalating base rates to challenge transportation budgets.
Key Takeaways:
1. Q1 ground delivery rates 39.3% above 2018 baseline; expected to reach 42% in Q2.
2. Ground fuel surcharges up 26.7% YoY; outpacing 10% diesel price jump.
3. Iran war and Strait of Hormuz disruption pressuring oil supply and fuel fees.
4. Atlanta-NYC 5-pound ground shipment is 41.8% more expensive than 2022.
5. March express fuel surcharges 46% higher than Q1 2025 levels.
