It was a surprise. I didn’t like it, but I understood it.
Back in 2008, I was reviewing the bills for my employer. Our delivery providers had started to add a new “fuel surcharge” to their invoices.
[ad#Google Adsense 336×280-IA]Oil was trading for more than $100 per barrel, so I understood how the companies could justify the charge.
But as a skeptic, I wondered… how long can this make sense?
That was eight years ago. Oil peaked around $145 a barrel and has fallen nearly 70% to less than $50 a barrel today.
U.S. consumers celebrated the drop in the oil price this summer by driving more than they had in years.
The prices of diesel and jet fuel – two major components of delivery-company costs – are down, too. And yet, these pesky surcharges remain.
As CNN recently reported…
The price of diesel is down 30% from a year ago, but UPS still charges customers a 5.25% fuel surcharge on top of whatever it would cost to ship a package. FedEx’s fuel surcharge is 4.25% for ground shipments and 2.75% for express shipments.
How can this be? Simple: Because they can.
FedEx (FDX) and UPS (UPS) try to justify the reasons why these surcharges still exist, despite dirt-cheap oil prices. Their reasons insult our intelligence. Here’s a good one from CNN…
Making additional stops instead of delivering multiple packages to a delivery dock drives up fuel usage, said FedEx spokesman Jess Bunn. And residential locations often require more travel between stops than do business deliveries.
As you know, there has been a huge increase in online purchases from sites like Amazon (AMZN). FedEx and UPS are two of the primary beneficiaries of this activity in the U.S. And it shows… Both companies’ profit margins are at multiyear highs.
In addition to making more money from these deliveries, FedEx and UPS are also taking the opportunity to tack a few more shekels on to the charge… just for good measure.
What, the delivery fee doesn’t cover the delivery?
As you can see, FedEx and UPS shares have been strong performers over the last seven-plus years…
It’s another example of the old saying, “If you can’t beat them, join them.”
Last week, I shared a way to “hedge” your grocery bill by buying the stocks of food companies as food packaging continues to shrink (and therefore, your cost per unit rises).
By buying shares of FedEx and UPS, you can take advantage of a similar scenario by hedging your online purchases.
As long as oil prices remain low – and you continue to pay fuel surcharges to buy your toilet paper online – FedEx and UPS should continue higher. Consider buying shares today.
Good investing,
Brian Weepie
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Source: Growth Stock Wire