Paul Ziobro and Preetika Rana, WSJ

NEW YORK/SAN FRANCISCO
EnergiesNet.com 04 11 2022

Soaring gas prices are squeezing transportation businesses and setting off debates about who will foot the bill.

FedEx Corp., Uber Technologies Inc. and Lyft Inc. imposed new or higher fuel surcharges on customers after Russia’s invasion of Ukraine shocked energy markets. But local contractors who own the FedEx Ground delivery trucks and some U.S. drivers of the ride-share services are pleading with the companies for even more financial help.

“Everywhere you look is just expenses, expenses, expenses,” said Melnik Lyudmila, a 51-year-old who quit driving for Uber and Lyft last month. The companies have tapered the big bonuses they handed to drivers at the height of a labor shortage last year, so she said the hours she spends behind the wheel aren’t worth the payout. Ms. Lyudmila, who has driven for the companies in New York City since 2016, is looking for other jobs as she waits for gas prices to fall.

The war in Ukraine and sanctions imposed on Russia, the world’s second largest crude-oil exporter, have driven up the costs of fuels around the globe. The national average price for a gallon of regular gasoline in the U.S. jumped to $4.22 in March, up 20% from February. Prices for a gallon of diesel, the fuel used by truckers, averaged $5.11 in March, up 27% in a month.

Some FedEx contractors say the surge in fuel costs is making it hard to maintain their profit margins.(LukeSharrett/Bloomberg)

“It’s been rough,” said Timothy Richards, who owns a single truck and has two drivers working for his Tauro Trucking LLC business in Huntsville, Ala. “A lot of these shippers, they really don’t care that gas is significantly high. They just want their product moved.”

He said he is seeking more direct business with shippers, rather than going through freight middlemen. Filling up his truck now costs more than $700, up from around $400 before Russia launched its Ukraine invasion, Mr. Richards said.

At FedEx, a legion of independent contractors is pressing the company for help. The delivery giant outsources its domestic FedEx Ground deliveries to 5,000 small businesses, which own local delivery routes. These businesses hire their own staff and buy their own trucks, making them responsible for the costs of bringing packages from FedEx sorting centers to homes and businesses.

In an online petition being circulated, FedEx Ground contractors are asking for a cash injection, either through a temporary payment or additional compensation per stop. “The reality of the current climate is that many [contractors] are on the verge of financial collapse,” according to the petition to FedEx executives. “We are in a very serious situation that is going to require immediate action to save these businesses—your business partners.”

FedEx pays the contractors based on how many packages they deliver and how many stops their trucks make each day. The contractors say their finances have been strained by higher labor costs, a drop in the volume of packages after a pandemic-driven surge and by the recent spike in fuel costs.Advertisement – Scroll to Continue

FedEx also pays a per-stop fuel payment that is adjusted based on the local price of fuel. “This dynamic approach addresses fluctuating fuel prices,” a FedEx spokeswoman said. “As the price of fuel rises or falls within local markets, so do the fuel-related payments to service provider companies.”

The formula works when the price of fuel moves up incrementally, but many contractors say that with the surge in fuel costs lately they are having a hard time maintaining their profit margins, according to Jeff Walczak, chief executive of eTruckBiz Inc., a consultant to FedEx contractors. “It doesn’t keep up,” he said.

The contractor model shields FedEx Ground from much of the costs, like fuel, trucks and labor, tied to the so-called last mile of delivery. FedEx is able to get merchants and shippers to pay for some of the rising fuel costs in the form of surcharges on packages shipped.

At FedEx Ground, the fuel surcharge was 11.75% at the end of 2021, and hit 16.25% at the end of March. The company in early April also adjusted its fuel surcharge tables, so that as fuel prices rise, the surcharge goes higher.

“Not only is it going up naturally, but it’s going up artificially because the table has changed,” said Josh Dunham, co-founder of Reveel LLC, a shipping data and analytics firm.

Uber and Lyft shifted some of the burden to riders by introducing a temporary fuel surcharge in mid-March. Riders now pay between 45 cents to 55 cents a trip based on their location.

Filling up at the pump costs more nationwide, as market disruptions from the Ukraine war
are expected to add more oil and commodity cost pressures. (brandon Bell/Getty)

The surcharge goes directly to drivers but is fixed per ride regardless of trip length. Some drivers say the calculus makes sense for shorter trips—which the companies say make for the majority of their rides—but that it discourages them from accepting longer rides, on which they burn more fuel. The companies consider drivers independent contractors.

The fuel surcharge is “absolutely not enough,” said Desiree Gillespie, who quit driving part-time for Uber and Lyft this month. Ms. Gillespie, a Chicago-based tutor, said she wants riders to pay a per-mile surcharge so drivers can account for gas on longer rides.

Lyft said its surcharge is based on data showing that drivers are spending on average 57 cents more on gas per hour than they were a year ago. Uber said that a per-mile surcharge would disadvantage drivers stuck in traffic.

On Tuesday, New York City-based driver group Justice for App Workers circulated an online petition it plans to send to top Uber and Lyft executives. The group is demanding that the companies cap their rate at 10% so drivers get a bigger slice of fares. Uber said its average global take rate for rides in the fourth quarter was 20%. Lyft doesn’t disclose its rate.

“Our workplace expenses have gone up across the board, not only when it comes to paying for gas, but for car and bike maintenance, rental payments, insurance and more,” said the petition, which had more than 5,000 signatures by Friday. “App workers are suffering—going into debt, falling behind on bills, even leaving the industry altogether.”

Uber and Lyft declined to comment on the petition. Uber said it had more active drivers on its U.S. platform in March compared with any month during the pandemic. Lyft said it hadn’t seen a decline in the number of drivers on its platform, or the hours they typically work, compared with January.

Uber and Lyft, already dealing with a yearlong labor shortage that has pushed up fares, have previously acknowledged that they need to take steps to appease drivers. Reducing their take rates or absorbing high gas prices are costly options because both companies are under pressure from investors to show a path to profits. Further raising fares could damp rider demand, analysts say.

While Uber and Lyft prices have cooled from last summer’s record highs, fares were still 22% higher on average in March compared with January 2021, according to market-research firm YipitData. The amount spent on Uber and Lyft trips is inching closer to prepandemic levels on the back of higher prices, but fewer people are riding, YipitData analyst Peter Martin said.

-Lydia O’Neal contributed to this article.

Paul Ziobro at Paul.Ziobro@wsj.com and Preetika Rana at preetika.rana@wsj.com

wsj.com 04 10 2022