Nearly 60% of CEOs believe high inflation will continue through mid-2023. The cost of everything is going up, especially shipping products from Point A to Point B. If your business sells physical goods, you face a difficult choice: whether to absorb those higher expenses (which would hurt your bottom line) or increase your prices (which would hurt your customers).
Fuel Surcharges Are Nothing New — but They Feel Different This Time
It’s common for FedEx, UPS, trucking companies, ocean shipping lines, and air freight carriers to levy extra fees to cover the cost of fuel. Usually, the direct consumer impact of those fees is hard to spot.
What’s changed is that we’re in a perfect storm of economic problems:
- Gas and diesel prices are rising faster than ever due to the Ukraine conflict.
- Overall inflation hovered at 8.6% in May, the highest rate since the early 1980s.
- The supply chain is still backed up due to COVID-19 issues.
If the price of industrial fasteners or machine parts rises by a few percentage points, commercial buyers may not notice — but if your favorite granola guilty pleasure goes up 20 cents, you may think twice about ordering it again.
This isn’t just a dilemma for huge corporations. Independent merchants on Amazon — who rely on the e-commerce giant to store, pack and ship their products — are getting hit with a new 5% fuel and inflation surcharge as of April 28. (Amazon had already added an average of 5.2% to the fees in January for those fulfillment services.)
Jeff Bezos lost billions from Amazon’s recent quarterly miss, but he can take the hit; small business owners can’t.
When the Upfront Price Isn’t the Final Cost
Higher costs aren’t always obvious in consumer pricing:
- For app-based service providers like Uber, Lyft, and Instacart, fuel surcharges may show up as an extra line item after consumers see the initial price. (Uber’s surcharge will last for 60 days, at which point the company will reassess them based on fuel prices and customer feedback.)
- Some companies have even added surcharges to their retail prices — 4% in the case of home decor chain Sherwin Williams. CEO John Morikis said in an earnings release that he expects raw materials and supply chain costs to remain high through the rest of the year. Some stores have posted signs warning customers of the added fees.
Is it better to make the fee a line item on an invoice or an order form, or simply raise prices to cover it? Consumers will know they’re paying more either way; the question is whether their resentment will be directed at you in particular or merely at the wider economic situation.
For two years, companies have been battered by uncertain supply chains, volatile prices, and labor and materials shortages. There may not be much financial reserve left to absorb more costs — from those companies or their customers.