Courier firms hike rates as oil price soars

Sending a parcel through the courier service has never been costlier. With the price of aviation fuel skyrocketing and courier companies passing their increased costs on to customers as a fuel surcharge, the rates for sending documents have shot up substantially in the past three months.

Sources in the courier industry told Emirates Business that courier rates have gone up by more than 25 per cent recently and big companies are trying to adopt fuel-efficient modes of operation and index their fuel surcharge to the global aviation fuel price. Some small companies have already closed down, unable to bear the increase in the cost of operation.

Xavier Thomas, marketing manager of First Flight Couriers, which operates to more than 200 countries from Dubai, said: "Our cost of operation has been shooting up mainly due to the high oil price. The entire courier industry is facing serious problems. We've had to hike our rates by more than 25 per cent in recent months."

The escalating fuel costs have forced Dubai-based Fast Express to close down. An official from the human resources department of the ENG Group, which owned Fast Express, said the firm was closed on May 5.

Mohammed Ali, who was a manager in the closed company, said: "It was a management decision to close down the firm. Our offices in Dubai, Jebel Ali and Abu Dhabi are closed and we have had to let about 50 employees go." According to an earlier statement from the company, Fast Express provided domestic and international courier services to several destinations and had plans to expand into other Gulf countries.

The firm, which had more than 500 reputed clients and a fleet of 50 vehicles, wanted to capture a share of the $39.5 billion (Dh145bn) Gulf Co-operation Council market, mainly Saudi Arabia and the UAE – countries where the courier industry grew by 30 per cent in the last couple of years.

Fedex, one of the world's leading courier companies, has increased fuel surcharge for Middle East customers from 15 per cent in March to 18 per cent this month – an increase of three per cent in the cost of sending and receiving parcels through the company.

Most courier companies use an index-based surcharge that is adjusted monthly based on the Rotterdam jet fuel prices reported by the United States Department of Energy.

An official from Fedex Express said: "The cost of sending a one kilogram parcel to India is Dh346 now compared to Dh267 a few years ago. If the oil price climbs further, the rate can go up further."

The fuel surcharge, based on the spot price per gallon of kerosene-type jet fuel, applies to FedEx Express transportation charges published in Europe, Middle East, India and Africa.

Another official explained that in FedEx's fuel surcharge table, the surcharge keeps changing according to changing jet fuel prices. Currently, the 18 per cent fuel charge is based on a per gallon average of the Rotterdam jet fuel price of between $3.32 and $3.46.

According to the table, the fuel surcharge can go up to 20 per cent if the ARA price goes up to $3.88 or $4.2 per gallon. The fuel surcharge was revised four times, from 15 per cent on March 3, to 16 per cent on April 7, and 17 per cent on May 5, 2008. The rate was revised again to 18 per cent with effect from June 2.

Aramex, another leading courier company, also uses an index-based fuel surcharge that is adjusted monthly for Aramex International Services.

Immex Immediate Courier, a medium-sized courier company, has increased the charge of sending a document weighing a maximum of half a kilogram from Dh18 a few months ago to Dh24 now.

DHL, another leading global courier firm, said it has also increased rates to match the new market situation, but the rates would be revealed to only regular customers. Sending a packet of 10kg from the UAE to India will cost Dh1,381 now, which includes fuel surcharge and taxes.

An official from Immex Immediate Courier said though the company cannot increase its rates regularly corresponding to oil price changes, a fuel surcharge is collected from customers.

Compounding the problem is the domestic situation in the UAE, the courier companies agree.

There is great difficulty in finding delivery boys with driving licences, especially for motorcycles. There are many companies that feel the need for switching to using motorcycles for delivery in the UAE because of the fuel efficiency of two-wheelers compared to cars and vans. However, they find their efforts stymied by the lack of people with motorcycle licences.

"We find it extremely difficult to recruit employees with UAE driving licences. It is especially difficult to get delivery boys with motorcycle licences. We are adjusting the best we can with the existing employees," said Thomas of First Flight Couriers.

"It would help the courier and logistics industry immensely if the authorities speed up procedures for obtaining motorcycle licences," he added.

Officials from Immex also termed the Salik system as a major overhead cost for courier companies, as their vehicles have to pass through the Salik gates several times in a day.

The numbers

25%: Rise has been seen in courier rates over the past few months

18%: Rate of fuel surcharge levied from June by Fedex, up from 15 per cent in March

Fedex to go hybrid

FedEx is the first courier company to make a long-term commitment to introducing hybrid-electric delivery trucks into the market.

The company is working with vehicle manufacturers to develop hybrid technology in commercial settings. With 10 new hybrid vehicles to be introduced into its European operations this month, FedEx is making strategic investments in projects that will help drive the development of new innovative technologies for the courier industry.

FedEx is also trying to restructure its fleet with motorcycles, efficient-sized vehicles, optimised route restructuring and using new fuel-efficient aircraft.

FedEx is a founding member of Carex, an association that promotes the development of a high-speed freight rail network within Europe, using existing rail links to deliver express cargo to major trade points, thus reducing noise and carbon emissions.