ith jet fuel prices shattering records just about every week, airlines are hunting for more ways to compensate for their growing fuel bills.

The squeeze is even tighter on the domestic side, with the flat economy and stricter security concerns driving more freight off aircraft.

Bearing the true brunt of the costs, however, are shippers, which are becoming stuck with fewer and costlier options as carriers cut services and ring up surcharges. Air cargo trucking services are coming under financial duress as diesel fuel costs continue their steep climb as well.

The price of jet fuel hit a new record at the end of March, reaching $3.455 per gallon in New York, about twice what it cost about a year ago, according to the U.S. Energy Information Administration.

After rising 10 cents per gallon from January to February, jet fuel prices soared another 69 cents in one month. During March, one cargo airline, Cargolux, raised its fuel surcharge every week.

Prices around the world are climbing almost as quickly as in New York. In Los Angeles, the price of jet fuel climbed from $2.767 in February to $3.182 on March 28. On the U.S. Gulf Coast, jet fuel prices increased from $2.728 in February to $3.137 on March 28. Outside the United States, Rotterdam reported selling jet fuel for $3.151 on March 28, up from $2.808 in February. In Singapore, the cost was $3.10 on the 28th, up from $2.643 in February.

The Air Transport Association, which represents major U.S. airlines, estimates that U.S. carriers will spend an additional record-setting $14 billion on fuel this year.

Pumped Up

The costs have raised alarm bells around the industry as executives try to cipher what's going on and what they can do about it.

"We are concerned by the steep relentless rise in oil prices and we see little justification based on near-term supply and demand conditions to support these prices," said Frederick W. Smith, chairman, president and CEO of FedEx.

"There's no doubt speculative trading has driven prices higher, overriding market principles and adversely affecting consumer and corporate spending," he told analysts. "Our chief economist calculates that the increase in retail gasoline costs since mid-October has resulted in consumers now paying over $1 billion more per week for gasoline, for example, than they would have at last October's prices.

"This is probably the largest transfer of wealth in the history of the world - $2.5 trillion from the … oil-importing countries to the oil-producing countries since the price of fuel began to run up in 2002."

FedEx is looking for some macro-level answers.

"We've been very active over the last couple of years in trying to get Congress and the administration to come up with a more forward-thinking energy policy and we were gratified with the fist step taken last December with the (Energy Independence and Security Act), which hopefully will have some effects in the months and years to come in addressing this problem," Smith said. "Now, at FedEx in particular we will continue to invest in more fuel-efficient aircraft, vehicles and facilities and we'll accelerate the retirement of equipment when we can achieve a good return on investment for doing so."

Over the short term, however, options for the airlines are relatively limited. But for forwarders and shippers, the looming option appears to be trading down in mode.

"We believe persistently higher fuel prices and the related effects of our fuel surcharges are reducing demand on a macroeconomic basis and leading some customers to shift to less expensive services," Smith said.

Forwarders say they used to be able to eat some of the surcharges for their favored customers, but with prices climbing so high, they have little choice now.

They also have fewer choices if they want or need to fly their cargo.

Cash Reserves

Several airlines have cut flights and last month the U.S. passenger carriers announced new cutbacks as the financial impact of the rising fuel costs started to hit harder.

On the heels of a $542 million net loss in the first quarter, United Airlines said it will cut its domestic capacity 9 percent by the end of the year following a 5 percent capacity cut in the fourth quarter. The airline will drop 30 aircraft from its fleet this year and scale back capital investment, extending a trend that has seen U.S. carriers seemingly withdraw from the market for new aircraft.

United also proclaimed in its earnings report that it "continues to be a leader of fare and surcharge actions"

That may have been one reason the airline's cargo revenue soared 29.8 pecent to $218 million in the quarter even though traffic in cargo ton miles grew only 5.5 percent. Continental Airlines also saw cargo revenue jump 14 percent on just a 2.8 percent increase in traffic.

Northwest Airlines even grounded part of it fleet, although the DC-9, 757, A320 and A319 aircraft are not big carriers of cargo. Other capacity also left the market abruptly in the past two weeks when three passenger airlines, including Aloha Airlines, ceased operations.

But the nation's biggest airlines should be in good shape, according to one recent report.

As of the end of 2007, according to a report by The Associated Press, the airlines had banked about $19 billion in cash, said CalyonSecurities analyst Ray Neidl. If fuel stays at current levels and revenue drops 2 percent, they would still have $14.7 billion in cash by the end of next year, under Neidl's estimate.

That's below the 10-percent-of-revenue cushion airlines like, but probably enough to keep them aloft.

Of course, that's betting on fuel prices staying at today's levels. That's looking like a riskier gamble.

Domestic Miss

A UPS warning its slumping business in the first quarter was the latest sign the U.S. domestic expedited transport scene was going from bad to worse.

UPS and other carriers are still reaching for international freight business as a life preserver, but skyrocketing fuel costs are weighing down air cargo money streams in all lanes. While fuel surcharges offer some relief, airlines say the charges are lagging behind rising fuel costs and don't even cover two-thirds of the real impact of the rising prices.

Not only that, but the parcel carriers agreed to fuel discounts for their baseline commercial contracts for the year. Indeed, deep discounts and rebates continue across the board, giving shippers leverage for negotiating deals as the carriers battle to keep their customer base intact.

UPS cut its profit projection for the quarter between 8.5 and 12 percent, citing the fast-rising fuel costs and a move by shippers away from premium services.

UPS Chief Financial Officer Kurt Kuehn said the U.S. package industry had a solid January, but several indicators worsened starting February, with volume declining across virtually the entire customer base.

Domestic cargo for U.S. carriers grew 3.8 percent in February, the strongest expansion in the troubled market since August 2006. But even that left the month's traffic at about where it was in February 2004.

UPS sees a brighter future in international trade.

"Today, only 20 to 30 percent of trade actually crosses a country's borders," UPS Chairman and CEO Scott Davis told investment analysts. "By 2025, that statistic is expected to be 80 percent. This means there's a lot of opportunity going forward."

… Briefly

Cargo traffic for U.S. airlines grew at its sharpest rate in a year-and-a-half in February, advancing 6 percent on the strength of expanding trans-Atlantic trade, according to the Air Transport Association. Cargo business on Atlantic lanes, where the weaker U.S. dollar has spurred exports, grew 12.2 percent in February, the largest increase there air since October 2004, while domestic cargo growth accelerated, expanding 3.8 percent. … The governor of Missouri and mayor of St. Louis signed an agreement with the Civil Aviation Administration of China to promote trade between St. Louis and China, including an agreement for a joint study to assess St. Louis Lambert International Airport as an air freight hub. … Estes Air Forwarding will implement CSA Software's Web-based tracking application, World-Trak. … Alaska Air Cargo is implementing a scanner-based cargo tracking system to give customers more timely information about shipments on Alaska Airlines and its regional airline subsidiary, Horizon Air. … UTi Worldwide's net profit fell 4.6 percent in 2007, to $98.7 million, including a 20 percent slide in the fourth quarter, despite a 22 percent gain in both gross and net revenue on the year. Operating expenses in the fourth quarter grew 23 percent, excluding charges for a worldwide restructuring effort at the contract logistics operator. … American Airlines tripled the weight limit on its Expeditefs freight service on narrowbody flights from 100 to 300 pounds. … Logistics operator Agility took a 10.8 percent stake in Industriaplex, an integrated supply and installation provider, striking an alliance under which Agility will provide logistics services to complement Industriaplex's sourcing and services. … Cargolux added Miami to its trans-Atlantic 747-400 freighter service, with daily service and continuing flights to Houston. … Estes Air Forwarding, the logistics subsidiary of trucker Estes Express Lines, said it's one of the first major carriers to meet the Transportation Security Administration's requirements for air cargo transportation. All drivers and other key personnel, who have access to air freight being transported aboard passenger and cargo aircraft have been trained and tested according to the TSA's specifications. … Lynden International acquired the Anchorage division of seafood logistics company Movers. The companies will provide services for the Alaska seafood industry. … UPS deployed 167 Compressed Natural Gas-powered delivery vehicles as part of a global alternative fuel fleet initiative. … Israel Aerospace Industries' Bedek Aviation Group delivered the first 767-200 converted freighter to Cargo Aircraft Management, a subsidiary of Cargo Holdings International, owned by ABX Holdings. The aircraft is part of ABX's strategy to diversify into the charter business beyond its DHL contract … First Financial Bank named DHL its exclusive delivery services provider in North America. … AA Cargo launched a Web-based service to provide access to customs status information on imports to the United States. … American Airlines Cargo increased the per piece weight limit on its Expeditefs freight product from 100 to 300 pounds on narrowbody aircraft, AA Cargo's express product that provides priority boarding.