Regan Brown
A fuel surcharge is a mechanism that helps to balance the fluctuating cost of fuel. It is a separate, additional fee added to the current contract rate when the cost of fuel exceeds a defined level. Fuel surcharges are calculated differently by individual carriers, depending on their fuel surcharge policy. However, there are a few basic metrics that most carriers use to calculate fuel surcharges, such as the base fuel rate, the average miles per gallon, and the change in fuel price from the time of booking to the time of delivery.
| Characteristics | Values |
|---|---|
| Purpose | To balance the fluctuating cost of fuel |
| Applicability | Trucking, shipping, air freight companies |
| Calculation | Varies by carrier; typically a percentage of the base fuel rate or fixed percentage related to a one-cent increase in the cost of a gallon of fuel |
| Base fuel rate | Price used to set the point above which the fuel surcharge will be activated |
| Base fuel mileage | The base mileage of a transportation truck |
| Base fuel price | How much fuel costs at the time of booking |
| Fuel economy | Miles per gallon fuel consumption |
| Fuel price change | Updated diesel costs at the time of shipment |
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What You'll Learn
Fuel surcharge is a separate, additional fee
A fuel surcharge is a mechanism that helps balance the fluctuations in the cost of fuel. It is a separate, additional fee added above the current contract rate when the cost of fuel exceeds a defined level. This means that the higher the price of fuel, the more money is made.
There is no rule, law, or regulation mandating a fuel surcharge. However, small carriers with direct shipper freight contracts must incorporate a fuel surcharge. Good carriers will typically pass through 100% of the fuel surcharge to their leased-on owner-operators. This allows the leased operator to offset the higher price of fuel.
Fuel surcharges are calculated differently due to individual carriers' fuel surcharge policies. An honest and transparent carrier will always explain how they determine the fuel surcharge. Fuel surcharges are typically calculated as a percentage of the base fuel rate and are dependent on three variables: the base fuel rate, the fuel economy the truck averages, and the miles per gallon it gets. The base fuel rate is a price used to set the point above which the fuel surcharge will be activated. For example, if the base fuel rate is $2.00 per gallon, and the fuel cost rises above that base rate, the fuel surcharge is triggered and applied to the cost of shipment.
To calculate a fuel surcharge, one must first determine how much diesel costs have changed by subtracting the original fuel price from the updated price. Then, the carrier will take that number and divide it by the truck's miles per gallon to create a fuel cost per mile. Finally, the carrier will multiply the cost per mile by the distance travelled. This is just one way carriers build this fee, and other methods include a percentage-based or ratio-based system.
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It's not meant to cover the complete cost of fuel
A fuel surcharge is a mechanism that helps balance the fluctuating cost of fuel. It is not meant to cover the complete cost of fuel but to help offset an increase in diesel prices. Fuel prices change based on multiple uncontrollable elements, and a fuel surcharge is needed to protect the carrier against loss if the price of fuel rises during the terms of a contract.
Fuel surcharges were originally created to legitimize agreements to ship materials on a contractual basis between the shipper and the carrier. The purpose of a fuel surcharge is to provide a flat rate that allows the cost of fuel to be incorporated into shipping rates. By averaging the cost of transporting goods, the result is a fair, fixed fuel cost shippers can use to account for fluctuating fuel prices.
Fuel surcharges are calculated differently due to individual carriers' fuel surcharge policies. All fuel surcharges are typically calculated as a percentage of the base fuel rate and are dependent on three variables: the base fuel rate, the fuel economy the truck averages, and the miles per gallon it gets. The base fuel rate is a price used to set the point above which the fuel surcharge will be activated. For example, if the base fuel rate is $2.00 per gallon, and the fuel cost rises above that base fuel rate, the fuel surcharge is triggered and applied to the cost of shipment.
The surcharge is added to the invoice for a load, and clients are required to pay that surcharge along with the rest of the applicable fees for the load. Carriers determine baseline ranges for fuel costs that will trigger different surcharges. Generally, the more expensive fuel becomes, the higher the fuel surcharge will be.
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There's no rule, law, or regulation mandating a fuel surcharge
Fuel surcharges are a mechanism in the trucking industry that helps balance the fluctuations in the cost of fuel. They are separate, additional fees added to the current contract rate when the cost of fuel exceeds a defined level. They are not meant to cover the complete cost of fuel but to help offset an increase in diesel prices.
There is currently no rule, law, or regulation mandating a fuel surcharge. This means that specific calculations are not mandated or enforced. Fuel surcharge policies are not regulated by any federal governing body, and shippers and carriers independently negotiate and establish these policies through contractual agreements.
However, small carriers with direct shipper freight contracts must incorporate a fuel surcharge. Good carriers will typically pass through 100% of the fuel surcharge to their leased-on owner-operators. This allows the owner-operators to offset the higher price of fuel.
Fuel surcharges were originally created to legitimize agreements to ship materials on a contractual basis between the shipper and the carrier. They provide a flat rate that allows the cost of fuel to be incorporated into shipping rates, resulting in a fair, fixed fuel cost for shippers.
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Carriers typically increase their surcharge when diesel prices rise
Fuel surcharges are a mechanism in the trucking industry that helps balance the constantly fluctuating cost of fuel. They are calculated differently by individual carriers, with no rule, law, or regulation mandating a fuel surcharge. However, they are typically calculated as a percentage of the base fuel rate, which is a price used to set the point above which the fuel surcharge will be activated. For example, a carrier might set a base fuel price of $4.00 per gallon for diesel, and if the price increases beyond that, the difference activates the fuel surcharge.
The purpose of a fuel surcharge is to provide a flat rate that allows the cost of fuel to be incorporated into shipping rates, creating a fair, fixed fuel cost for shippers to account for fluctuating fuel prices. This is particularly important for carriers, as fuel accounts for one of their highest expenses, and the rapid increase in diesel prices can dramatically increase shipping costs. By adjusting the surcharge, carriers can compensate for rising fuel prices during the contract term and mitigate their risk of losing money.
It is worth noting that not all carriers pass on the full fuel surcharge to their leased-on owner-operators or drivers. While good carriers will typically pass through 100% of the surcharge, allowing the leased operator to offset the higher fuel price, it is essential to understand what a lease contract includes regarding the fuel surcharge and its distribution. Additionally, brokers do not typically pay a fuel surcharge, so it is crucial to incorporate the surcharge into all-inclusive rate negotiations.
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Fuel discount cards protect from sudden price hikes
Fuel prices are unpredictable and managing fuel expenses can be challenging for drivers and trucking companies. Fuel surcharges are a mechanism that helps balance the fluctuations in the cost of fuel. While there is currently no rule, law, or regulation mandating a fuel surcharge, it is a widely accepted practice that helps protect the carrier against loss in the event of a rise in fuel prices during the contract term.
Fuel surcharges are calculated differently by individual carriers, and there is also a different surcharge for truckload (TL) and less-than-truckload (LTL) shipments. However, all fuel surcharges are typically calculated as a percentage of the base fuel rate and are dependent on three variables: the base fuel rate, the base fuel mileage, and the average fuel price. The base fuel rate is a price used to set the point above which the fuel surcharge will be activated. For example, if the base fuel rate is $2.00 per gallon, and the fuel cost rises above that, the fuel surcharge is triggered and applied to the cost of shipment.
Fuel discount cards can help protect drivers from sudden price hikes. For example, TransConnect Services (TCS) offers a cash-secured fuel card for truck drivers with average savings of 47 cents per gallon, and discounts of up to 86 cents per gallon. TCS is committed to offering unbeatable fuel discounts and zero transaction fees at their in-network truck stops. The TSD card is another option that offers discounts at truck stops, although it may only work in the trucker lanes.
Additionally, some fuel apps such as GetUpside and Pilot/Flying J can help users find discounts on diesel fuel prices. These apps do not require sign-up costs or linking a card or account; users simply need to upload a picture of their receipt.
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Frequently asked questions
A fuel surcharge is a mechanism that helps balance the fluctuating cost of fuel. It is added to the total freight charges on either a per-mile or percentage basis.
A fuel surcharge is calculated using the average price, subtracting the base price and dividing the result by the base fuel mileage. It is determined by three variables: base fuel price, truck fuel economy, and fuel price change.
The fuel surcharge will be included in the final bill or invoice. It is best to work directly with the carrier to understand their methods of calculation.
There are no laws or regulations mandating a fuel surcharge. However, fuel prices are regulated at the national level, and the average diesel fuel price is posted weekly by the U.S. Energy Information Administration (EIA).
Fuel surcharges are a common part of freight shipping and are necessary to protect carriers against loss due to fuel price fluctuations. While there is no way to avoid them, you can work with carriers to understand their calculation methods and negotiate rates.
