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FedEx Earnings Preview: Fuel Price Decline, Pricing Mechanism To Drive Earnings | Forbes

Fuel Prices To Affect Revenues and Margins

In the previous quarter, FedEx’s fuel surcharge declined as a result of the decline in fuel prices. We expect the trend to have continued in the fourth quarter. Though the decline in fuel prices would have helped reduce FedEx’s fuel bills, the decline in fuel surcharge would have eroded some of the benefit, leading to a net positive impact.

FedEx Ground’s fuel surcharge is based on the two month lagged average price of the U.S. on-highway diesel fuel, which declined 26.3% year-on-year in the 3 months ended March. FedEx Express  fuel surcharge is based on the two month lagged U.S. Gulf Coast spot price for a gallon of kerosene-type jet fuel, which declined 44.3% year-on-year in the 3 months ended March.

In order to curb the impact of the declining fuel prices on its surcharge revenue, FedEx recently announced revised fuel surcharge rates. In addition to increasing fuel surcharge rates, FedEx widened the range over which rates remain static. The higher rates and broader ranges will allow FedEx to capture higher fuel surcharge revenue if fuel prices continue to decline.

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FedEx Earnings Preview: Fuel Price Decline, Pricing Mechanism To Drive Earnings.

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