One of the many ways FedEx Ground ISP contracts ensure sustainable operations is by subsidizing fuel costs. Further, these subsidies correlate with the price of diesel fuel in an operation’s market.
The Impact of Fuel Prices on Linehaul Operations
Linehaul operations receive a per mile fuel offset from FedEx Ground based on the price of diesel in the zip code of dispatch.
This means that if you have a run from St. Louis to Phoenix, you receive a fuel offset based on the diesel prices in St. Louis. And if you then go from Phoenix to Los Angeles, you receive a fuel offset based on prices in Phoenix. The offset considers each leg of the run.
FedEx Ground adjusts the fuel offset weekly and accounts for every $0.10 move that diesel makes. The adjustment is a fraction of the diesel price move. For example, if diesel fuel costs go up by $0.10 then the fuel offset may go up by one cent.
The Impact of Fuel Prices on P&D Operations
FedEx Ground P&D contracts include a Per Stop Fuel Surcharge.
This variable charge is paid per stop and, similar to linehaul operations, fluctuates weekly with current diesel fuel prices in your delivery market. Also like linehaul, the Per Stop Fuel Surcharge will adjust only a fraction of the diesel price move.
The Bottom Line
You are still going to absorb the pain of rising diesel fuel prices. No doubt about it: your profit margins are better when fuel prices are lower. However, FedEx Ground does have an offset for high diesel fuel prices in both linehaul and P&D contracts.
If prices were to spike substantially (such as during wartime or following a natural disaster), FedEx Ground would likely introduce some type of an additional fuel surcharge.
And if you want to work with our team, we can help you model expenses and plan for variable expenses like fuel prices.