October 26, 2026 — US retailers are preparing for the most expensive holiday shipping season on record as surging diesel prices and rising carrier fuel surcharges drive parcel delivery costs higher.
Ground delivery prices, including shipments for online purchases, are projected to increase 5.8% in the fourth quarter compared with the same period in 2025. Express parcel delivery prices are expected to climb 13.8%, according to the TD Cowen/AFS Freight Index, which analyzes anonymized shipping data from 1,800 shippers, including major retailers.
Holiday package volumes can double during the fourth quarter, making transportation costs a major concern for retailers managing the year’s busiest sales period.
Mingshu Bates, chief analytics officer at AFS Logistics, said fuel costs remain a central concern for the industry, with little immediate relief in sight.
The average US on-highway diesel price reached $6.28 per gallon as of October 19, according to the Energy Information Administration. That represents a 65% increase since the United States and Israel attacked Iran on February 28.
Carrier Surcharges Add to Retailers’ Burden
Although rising diesel prices contribute to higher delivery costs, changes in how major carriers calculate fuel surcharges are also playing a significant role.
Bates said diesel price increases account for just under 30% of the cost associated with fuel surcharges. Adjustments to surcharge calculations by companies such as UPS and FedEx have pushed charges higher, even during periods when diesel prices remain unchanged.
The TD Cowen/AFS index illustrates the change. When diesel averaged $2.91 per gallon in the first quarter of 2021, the index’s fuel surcharge stood at 7.75% of the base shipping rate. At the same diesel price today, the surcharge would be 23.75%, approximately three times higher.
At the current average diesel price of $6.28 per gallon, UPS applies a fuel surcharge of 29.5%, while FedEx’s rate is 29%, based on their published surcharge tables.
UPS said its pricing reflects the premium nature of its services and investments in its infrastructure. FedEx did not immediately comment.
Both companies were scheduled to report quarterly earnings during the week, with investors watching for indications of whether customers are resisting the higher surcharges.
Retailers Search for Ways to Reduce Costs
The holiday shopping season is one of the most important periods of the year for retailers, requiring months of planning for inventory, staffing and transportation.
Jess Dankert, vice president of supply chain at the Retail Industry Leaders Association, said fuel surcharges are a regular part of negotiations between retailers and delivery companies.
To manage rising expenses, retailers are exploring ways to reduce shipping volumes and diversify delivery arrangements. Some are offering incentives for customers to return online purchases at physical stores, helping avoid the cost of shipping returned products.
Others are bringing in alternative delivery providers to handle a larger share of holiday shipments.
Companies including OnTrac, GoFo, UniUni, Jitsu and Veho have expanded their delivery networks and collectively cover approximately 70% of the US population, according to Satish Jindel, president of shipping management firm ShipMatrix.
Jindel said more shippers are adopting these alternatives in an effort to reduce transportation spending.
However, switching carriers does not guarantee lower costs. Some alternative providers have also introduced substantial fuel surcharges. OnTrac, for example, listed a West Coast surcharge of 29.5% for the week ending October 25.
Amazon and USPS Offer Alternatives
Retailers may also consider shifting more deliveries to the US Postal Service or Amazon’s logistics network.
The USPS introduced its first fuel surcharge, set at 8% on most packages, in April. Amazon began applying a 3.5% fuel and logistics-related surcharge to sellers’ fulfillment fees during the same month.
Despite these alternatives, changing delivery arrangements presents practical challenges. Dividing shipments among multiple providers can reduce the volume discounts available from individual carriers, potentially offsetting some of the savings.
Holiday shipping plans are also established months in advance, making substantial last-minute changes difficult.
JPMorgan analysts said Amazon is unlikely to displace UPS and FedEx’s dominant positions in the delivery market in the near term.
Shipping Costs Could Shape Holiday Profit Margins
With diesel prices elevated and fuel surcharges adding to transportation expenses, retailers face a difficult balance between delivering products quickly and protecting profit margins.
The projected 5.8% increase in ground delivery prices and 13.8% rise in express shipping costs could be particularly challenging for businesses that offer free shipping or absorb delivery fees to remain competitive.
Retailers are responding by negotiating carrier contracts, encouraging in-store returns and expanding partnerships with alternative delivery companies. Nevertheless, widespread surcharge increases mean there may be few options for avoiding higher costs entirely.
As the holiday season approaches, the ability to manage shipping expenses efficiently could become an important factor in determining retailers’ profitability during one of the most commercially significant periods of the year.
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