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Fuel Surcharge

10/27/09

Permalink 09:37:35 am, Categories: efficiency , Tags: fuel surcharge

Diesel and other fuel prices have risen considerably, but freight rates have remained the same. How does an owner operator, independent, or any carrier manage? The answer... a fuel surcharge.

What is a fuel surcharge and how should it be calculated?

It is an accepted practice for trucking companies to charge customers an extra fee that fluctuates with the cost of fuel. Fuel surcharges are calculated as a percentage of the base rate and are added to a shipper’s freight bill to cover the carrier’s added cost of operations. The surcharge is linked to a government-reported, average fuel price and is "indexed" for the carrier, based on an individual company or industry wide ratio of fuel cost to revenue. Surcharges are often defined as charges above normal rates. A fuel surcharge has traditionally been sold as a charge that covers actual additional fuel costs above the benchmark cost included in the freight rate.

Here is a way to calculate your own fuel surcharge.

The average price, minus the Benchmark price, divided by the miles per gallon, gives the surcharge rate, and multiplied times the miles driven gives the fuel surcharge amount you should recover.

A fuel surcharge should be based on the average retail price of diesel fuel in the region of origination, or where you pick up your load, on the date you pick up, or the date of invoice on this load. This average retail price information, collected by the federal government's Energy Information Administration, is updated every Tuesday. The information is available by phone by calling (202) 586-6966 or you can visit their Web site.

Does a shipper have to pay fuel surcharge?

Past ICC regulations allowed shippers to be charged a surcharge when diesel fuel costs exceeded a certain level. That sunsetted with that agency’s demise and new laws are in the making. Regardless, competitive pressures are resulting in shippers paying surcharges today.

Since the rise in fuel, most shippers are very comfortable with the fact that there is a surcharge. Some have had them in place for many years and others have been putting one in place for three reasons.

First, shippers can clearly see that it’s necessary due to the fluctuation of fuel prices. Second, shippers can sometimes pass rising surcharges on to their customers; and Third, it is possible in many cases to negotiate the surcharge level. As a permanent part of most carriers' tariffs, surcharges rise and fall weekly to help truckers cope with volatile fuel prices. But if shippers would prefer to pay higher overall freight rates, many motor carriers are willing to cap—or even nearly eliminate—fuel surcharges for that shipper's specific account. Although shippers may not like paying the extra money, the surcharges are actually helping to maintain competition in the trucking industry.

There is no federal regulatory enforcement, or involvement of any kind on fuel surcharge. Fuel surcharges must be negotiated individually in contracts between customers and carriers. There is still a major flaw in this process. There is no legal requirement mandating that the fuel surcharges collected from a shipper be passed on to the person who actually paid for the fuel in order for a load to be hauled.

TruckMaster would like to here your thoughts on this issue. How do you think the laws should read?

Please provide us feedback on how what your company thinks about how fuel surcharges should be passed on. It would be interesting to see how everyone out there feels about this hot topic.

Donna Bratton
TruckMaster Solution Provider
TruckMaster Your Freight Brokerage

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