Thursday, August 31, 2006

The "Fuel Surcharge Scam" Scam

Daniel Gross has strange column in Slate arguing that shipping companies (UPS, Fedex, DHLapparently the USPS is not doing this, and Im not sure about the smaller, more industry-oriented shippers) are engaging in some kind of nefarious scheme by adding fuel surcharges to their ordinary fees. He suggests theyre just a way to dupe customers into paying higher prices.

My first response to this would be to say Of course these are price increases. But so what? And how would consumers be duped into thinking theyre not paying moreare they too stupid to know a surcharge is an additional charge? What is so underhanded about this, exactly? Consumers can figure out sales taxes, even though theyre not listed on store shelves, but they cannot handle an explicitly stated fuel surcharge.

He then goes on to complain that for a particular example of a shipped document, the fuel surcharge seems too high. I suspect that they have in part designed their fuel surcharges to be simple, rather than having them exactly fit the costs associated with the huge variety of packages, distances, and speeds the businesses accommodate. If instead of simplicity the shippers had a fuel surcharge chart of labyrinthine complexity, combining weight, size, distance, speed, and circumstances under which the package was shipped (hand delivered to a store, picked up by employees, dropped in a drop box, etc.), we would instead be reading an article arguing that the clever shipping companies are trying to confuse customers in order to sneak price increases by them. When it comes to people who willingly see business conspiracies, the businesses simply cannot winany action on their part will be reinterpreted more underhanded behavior.

What about competition? If there is something evil going on here, why do the shippers all go along with it? If Fedex is overcharging for shipping by somehow fooling customers with its plainly-stated fuel surcharge, wouldnt UPS benefit from avoiding such surcharges? Granted there are only four large firms in this industry, but the gains to a company that wont go along with a substantial price increase (that isnt based on a cost increase) would be large.

At the end of the article, Gross mentions that some of his services are adding fuel surcharges, while others are not, and this is evidence of further gouging. How in the world can he know this? Different companies and industries have different cost structures. Some may be able to absorb the gas price increase, while others cannot. In any case, if he thinks the price of the services offered is too high, he should switch companies. He is apparently as foolish or passive as the consumers he insults in his opening paragraph, unable to do anything but sit back and accept whatever prices he is offered. Call a different lawn fertilizer company. Hire a new garbage pickup service (assuming the city hasnt monopolized that industry). If you dont like the deal being offered, vote with your wallet. But if you find that all the companies are behaving similarly, consider the possibility that this is an equilibrium outcome of competition, rather than a conspiracy to fool you.