Chewy took a low-single-digit-million-dollar hit to Q1 gross margin from carrier fuel surcharges and expects a mid-single-digit-million headwind in Q2, CFO Chris Deppe said Wednesday, making it among the first large parcel shippers to quantify what the 2026 diesel spike is costing at the invoice level.
By the numbers: Gross margin still rose 50 bps to 30.1% on net sales of $3.36 billion, up 7.7%, Chewy reported. Full-year guidance assumes similar fuel headwinds for the balance of the year. CEO Sumit Singh said sponsored-ads revenue is offsetting part of the fuel pressures now "persistently loaded into our P&L."
The surcharge, explained: A fuel surcharge is a separate percentage fee carriers layer on top of the base shipping rate.
It exists so carriers can pass fuel-price swings straight through to customers without rewriting their rate cards every time diesel moves.
UPS and FedEx peg the percentage to the government's weekly national diesel average (UPS resets Mondays, FedEx Wednesdays), so pump prices reach parcel invoices within days. At today's tables, a $10 UPS Ground base rate carries roughly $2.55 in fuel fees.
Why it's spiking: Diesel hit $5.21 a gallon the week ending June 8, per EIA data, up about 50% from a year ago on the Iran war fuel shock. That pushed UPS Ground's surcharge from roughly 21.5% to 25.5% in mid-March, with FedEx moving from 22% to 25% the same week.
Where it's headed: UPS's restructured table sets a minimum floor of 18.5%, so unlike past fuel spikes, the fee won't fully unwind even if diesel falls, and that floor is why Chewy's guidance carries the headwind through year-end.
Beyond UPS and FedEx, Amazon added a 3.5% fuel surcharge to FBA fees, and USPS, which says it has historically avoided surcharges, imposed a temporary 8% price increase citing transportation costs.
What's next: Most shippers bury this cost in their freight line; Walmart, one of the few others to size it, absorbed about $175 million in fuel costs last quarter.
No other large parcel shipper has yet put a dollar figure on the full-year cost of the reset surcharge tables; Chewy's guidance is the first public number.
