Tag Archives: fuel surcharge

What Are Fuel Surcharge Costing You?

What is a national fuel surcharge?

A fuel surcharge is an extra fee that trucking companies (or third parties) charge to cover the fluctuating cost of fuel. It is calculated as a percentage of the base rate and is usually added to a shipper’s freight bill to cover the cost of operations. The fuel surcharge depends on the average fuel price and can be different for each shipper or industry, depending on fuel cost to revenue ratio. It covers additional fuel costs and keeps carriers profitable, even when the cost of fuel rises.

How is a fuel surcharge calculated?

fuel surcharge

There is no uniform way of calculating fuel taxes; companies use their own formula. Most carriers have information on how they determine the fuel overcharge on their website. For example, UPS uses an index-based surcharge that is adjusted monthly and is based on the National U.S. Average On-Highway Diesel Fuel Price as reported by the U.S. Energy Information Administration (EIA). Currently, the UPS surcharge is 4.50 percent on ground packages with a fuel diesel price of $2.61 per gallon.

National fuel surcharge calculation formula:

  • Threshold fuel price: If fuel costs more than the base price, the surcharge will be applied.
  • Base fuel mileage: Usually 5-7 miles per gallon. The average 18-wheeler gets about 6.00 mpg.
  • Current fuel price fluctuation: The U.S. Department of Energy serves as a source for this information. National and regional average prices are published weekly.
  • The average price, minus the agreed base fuel price, is divided by miles per gallon equates the surcharge rate. For example, suppose the current price of fuel is $2.50 per gallon, fuel mileage is 6 mpg and the base fuel price is $1.20.

$2.50 – $1.20 = $1.30

$1.30/6 = $0.22

To get the total fuel surcharge amount per particular shipment, the rate should be multiplied by miles are driven:

$0.22*600 = $132

This way, a load traveling 600 miles, the shipper can expect to pay $132 fuel tax amount.

Another, less popular method of calculating is based on a percentage from load price. For example, if a surcharge is at 20%, then a $500 load would have a surcharge of $100.

Are there any regulations on a surcharge?

No federal administration regulates a fuel surcharge policy.  Each shipper and carrier individually negotiate and set it in contracts. There is a vast space for fraud – there are no legal requirements to control passing collected fuel taxes from a shipper to a person who actually pays for fuel for shipper’s load. The carrier may have stated a flat surcharge for their drivers, but much higher surcharge prices for shippers – so they could pocket the difference. Shippers should know that surcharge money will actually be passed to drivers.

Tips for Carriers

Obviously, fuel is one of the highest expenses for a carrier, together with drivers’ pay. Using a surcharge supports negotiation on long-term contracts, where base rates remain the same and the fuel surcharge acts as security from short-term fuel price fluctuations. Sometimes, it’s worth using higher fuel mileage than your fleet’s average, choosing 6.25 mpg instead of 6.00 mpg. This gives carriers a competitive advantage in attracting shippers.

Tips for Shippers

Remember, most carriers are ready to negotiate a fuel tax level. If you are able to pay a higher overall rate, it is possible for carriers to decrease or even eliminate the surcharge. It is always good to have options, especially when diesel fuel prices go up and increase surcharge rates. Develop a market fuel surcharge program—third parties, like a 3PL, are excellent sources for this information because they typically deploy many programs. According to a Dallas-based third-party logistics provider, in a survey of 150 large shippers, for a shipper with $100 million in annual truckload spend, a one-cent-per-mile adjustment in the formula for calculating fuel surcharges could cut the company’s annual bill to $32 million from $38.8 million.

What to Read Next: Supply Chain Visibility Infographic

If you want to get expert assistance in dealing with fuel rates, contact PLS Logistics Services.

Fuel Surcharge: How is it calculated?

465723909Conflicts in the Middle East, as well as general shortages of petroleum and natural gas, are all factors in the rising cost of gasoline and diesel fuel over the past several years.

Many industries have felt the pressure on their bottom line as a result of these increased prices, and the freight industry is no exception.

To compensate, a Fuel Surcharge is included as part of the final bill. But what exactly is it, and how is it calculated?

Understanding Fuel Surcharges

A fuel surcharge is the total cost of gasoline or diesel fuel used to move one shipment. Since fueling up is often the most expensive part of a long-distance shipment, companies charge their customers a surcharge rate that appears on their invoice. This added charge serves as compensation for all gasoline purchased during the transportation of their load. This helps to eliminate some of the financial burden placed on the shipper.

How is it calculated?

Fuel surcharges are usually added to the total freight charges on either a per-mile or percentage basis. Most fuel surcharges are based on an average mile per gallon and the national average price of diesel.

These charges are directly related to the numbers reported by the EIA/DOEin their Retail On-Highway Diesel Prices Index, which are available to the public on their website. The EIA does not dictate how a fuel surcharge is calculated; it is negotiated privately by the shipper and trucking company. Each company has its own method for calculating surcharges.

Fuel surcharge rates are updated monthly by the shipping company to ensure that the customer is being charged the most accurate and up-to-date price per gallon. Surcharge rates differ from company to company, but most are calculated as a fixed percentage related to a one cent increase in the cost of a gallon of fuel.

For example, say a company charges a 10% increase on every cent that the cost of a gallon of fuel rises by, and the price per gallon rises from $3.00 to $3.03. The total increase in price would be 30% (10% X 3). Likewise, if the price of fuel falls from $3.00 to $2.97, the fuel surcharge rate would decrease by 30%.

(Note: A ten percent increase on the penny is an astronomically high amount, with the average rate usually less than a half percent increase, but in the name of easy math we’ll just leave it at en even 10).

For more info on fuel costs, check out our post on natural gas and General Rates Increases (GRI).