Open this photo in gallery:
Passengers wait on a gangway to board a Westjet flight in Yellowknife. Air Canada Vacations started implementing a $50 fee per passenger on some destinations starting Monday.Jeff McIntosh/The Canadian Press
As the war in Iran enters its second month, major companies, from airlines and couriers to online retail giants and grocers, are passing on fuel surcharges of as much as 20 per cent to consumers.
But the full impact of rising fuel costs is yet to be seen as surcharges are likely to get folded into base prices the longer the Middle East conflict continues, experts say.
Air Canada Vacations started implementing a $50 fee per passenger on some destinations starting Monday. WestJet became the latest airline last week to announce a $60 fuel surcharge on all bookings made using a companion voucher from its Mastercard loyalty rewards program.
But in a statement, WestJet spokesperson Julia Kaiser said that airfares, regardless of route or seat class, reflect current operating costs and typically fluctuate based on market supply and demand. “As fuel prices have continued to rise, fares have adjusted accordingly.”
Air Canada AC-T, meanwhile, said that the surcharge Air Canada Vacations is imposing on its vacation offerings “only and mostly reflects the increased cost of ground packages,” said spokesperson Peter Fitzpatrick.
For Air Canada’s part, “we are managing fuel costs through our regular fare structure,” he said.
WestJet to add $60 fuel surcharge to some bookings, combine flights as costs soar
With fuel prices reaching a national average of $1.86 a litre this week, it costs around 35 per cent more to fill up a regular gas-powered vehicle than just a month ago. And it’s about 45 per cent more when it comes to the diesel trucks delivering parcels, produce and other consumer goods.
While some companies are openly listing fuel surcharges as separate line items, others may already be embedding those costs into overall prices.
“There’s nothing that requires airlines for example to stipulate that the price for a ticket for $500 increased a hundred dollars in fuel surcharges,” said Fraser Johnson, professor of operations management at the Ivey Business School at Western University. “They can just simply increase your prices.”
Fuel surcharges tend to appear more explicitly in cases where there are fixed pricing structures or contracts, such as companion vouchers or corporate agreements, he said.
In other words, fuel surcharges are often a temporary and transparent mechanism, intended to signal that price increases are tied to unusual external conditions.
Decoder: The gas price shock isn’t hitting Canadian cities evenly
Couriers such as FedEx FDX-N, for example, whose fuel surcharges hovered around 25 per cent in February, have now climbed to roughly 45 per cent for FedEx Express and regular shipments within Canada. Amazon AMZN-Q, meanwhile, announced Thursday that it will apply a 3.5-per-cent surcharge to sellers using its Fulfillment by Amazon program starting April 17, costs that sellers will ultimately have to weigh whether to pass on to shoppers.
When charges are expected to last longer, they can translate into higher base costs that become less visible.
With a temporary fuel fee, “it’s a business being able to say that because of these unusual circumstances, I need to recoup these costs of my supply chain,” Prof. Johnson said. “And when things return to, or if things return to normal, then we’ll remove the fuel surcharge.”
But recently, some companies have changed their tune. “Now what I’m hearing is that service providers are just trying to build it into their base rate.”
Beyond explicit fuel fees, rising gasoline prices are already rippling through the economy. “Diesel prices increased by 50 per cent – anything you buy, whether it’s food, groceries, consumer goods, even automobiles … it becomes more expensive,” said Prof. Johnson.
Conservatives call for dropping tax on gas and diesel for rest of this year
Gary Sands, vice-president of government relations at the Canadian Federation of Independent Grocers, said retailers are increasingly getting hit with notices from suppliers alerting them of cost spikes. These can be as small and fixed as $10 per delivery truck and as high as 15 per cent, depending on the supplier and product.
Vegetables, meat and dairy see the highest spikes owing to their refrigeration needs and travel across longer distances during Canadian winters.
“In Newfoundland, goods are already higher because the cost of transportation – a lot of times stuff when it gets to the coast, it’s gotta be transported to the island by ferry,” said Mr. Sands “So they’ve been harder hit by these things.”
Independent grocers operate on margins of around 2 per cent.
“If you don’t pass it on, you’ll be an out-of-business grocer,” Mr. Sands said, referring to fuel surcharges. “All of it has to be passed on to consumers.”
When companies no longer use separate surcharges and instead raise their base-rate costs, it will become harder for both businesses and customers to renegotiate prices later if fuel costs decline.
“Prices rise like rockets and fall like feathers,” said Prof. Johnson.
