Katerina Swanson
Fuel surcharges are additional fees implemented by carriers to offset rising fuel costs. While there are currently no laws mandating a fuel surcharge, most carriers have some formula for calculating one. These surcharges are meant to help cover the costs of fuel, but they do not always fully compensate for the expense. Fuel surcharges are typically calculated based on the price of fuel at the time of signing a contract, with increases in fuel prices resulting in higher surcharges. For example, when the fuel cost is $4.10 or higher, the adjustment is often $0.58 plus $0.01 or 30.0% plus 0.5% for every $0.05 increase in fuel cost per gallon.
| Characteristics | Values |
|---|---|
| Basis of fuel surcharge | The DOE Weekly On-Highway fuel price |
| Fuel surcharge calculation | For every $0.05 increase in fuel price per gallon over $6.00, the surcharge increases by 0.50% |
| Applicability | Applicable to leased carriers and owner-operators |
| Fuel surcharge distribution | Large carriers typically have a formula for a fuel surcharge, but may not pass it on to the owner-operator |
| Fuel surcharge and contracts | Leased operators should know their lease contract terms regarding fuel surcharge and its distribution |
| Fuel cards | Fuel discount cards can protect against sudden price increases |
| Fuel surcharge and freight contracts | Small carriers with direct freight contracts must incorporate a fuel surcharge |
| Fuel surcharge and brokers | Brokers typically do not pay a fuel surcharge, so it should be incorporated into rate negotiations |
| Fuel surcharge calculation tools | OOIDA provides a fuel surcharge calculator to determine the amount to add per mile to cover fuel cost increases |
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What You'll Learn
Fuel surcharge calculators
There are several fuel surcharge calculators available online, such as those provided by OOIDA, Rigbooks, and altLINE. These calculators generally require a few key inputs to determine the fuel surcharge:
- Baseline fuel price: This is the fuel cost used when calculating estimated costs or setting rates. It is usually the average fuel price at the time of setting the rates.
- Average miles per gallon (MPG) or fuel mileage: This represents the average fuel consumption or efficiency of the vehicle.
- Current fuel price: The latest or real-time fuel price at the time of the shipment or calculation.
Using these inputs, the calculators determine the fuel surcharge per mile. For example, if a carrier sets their fuel price baseline at $2.50, and the average diesel fuel price increases to $5.25, the surcharge per mile would be calculated to offset the difference. In this case, the surcharge would be $0.46 per mile.
It's important to note that fuel surcharge calculations can vary, and some carriers may have their own formulas. Additionally, there is currently no rule, law, or regulation mandating a fuel surcharge, but it is a common practice to pass on the increased fuel costs to the shipper or consumer. Small carriers with direct shipper freight contracts typically include a fuel surcharge in their pricing.
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Fuel discount cards
Fuel cards are a great way to save money on fuel purchases. With fuel prices being unpredictable, especially for diesel, a fuel card can offer significant savings and discounts.
The TCS Fuel Card, for example, offers "unbeatable fuel discounts and zero transaction fees" at their in-network truck stops. Users of the card have reported savings of up to $0.86 cents per gallon, with an average of 47 cents per gallon based on actual in-network transactions. The card can be used for a range of products and services beyond just fuel, catering to the daily demands of life on the road.
Another option is the Mudflap Fleet Card, which offers "huge cost-plus diesel discounts" and is recommended by 94% of owner-operators and fleets. The card is issued by Celtic Bank and is subject to credit approval. Discounts vary by stop in the Mudflap network and market conditions.
The Fleet One EDGE Card, issued by WEX Inc., is also a great choice for fuel savings and discounts. It provides access to one of the largest nationwide discount networks, with savings on fuel, tires, hotels, wireless plans, repairs, and more. The card offers convenient features like real-time card balances, transaction details, and locating fuel stations.
These fuel cards can help mitigate the impact of fluctuating fuel prices, which are often based on the United States Department of Energy, Energy Information Administration (EIA) average price for a gallon of diesel fuel. By utilizing these fuel cards, individuals and businesses can better manage their fuel expenses and take advantage of the various benefits offered by each card program.
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Fuel surcharge distribution in lease contracts
A fuel surcharge is a separate, additional fee added to the current contract rate when the cost of fuel exceeds a defined level. It is meant to help offset an increase in diesel prices. 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 (OO). This allows the leased OO to offset the higher price of fuel. It is important to make sure your lease agreement includes the 100% pass-through.
When determining whether a surcharge will be acceptable, the customer will use the US National Average Diesel Fuel Index, as reported on the day the purchase order is issued, to determine the average cost of No. 2 Low Sulfur Diesel fuel for the appropriate delivery region. The base fuel cost will remain constant throughout the life of the contract, including option years, and will be documented at the time of the contract award.
Any adjustments for fuel price changes will only be implemented if requested in writing, reviewed by both parties, and provided within the designated time frames. No retroactive cost adjustments will be made. A contract modification will be issued at the inception of the first increase or decrease, detailing the base fuel cost, price range, and calculation of the first fuel adjustment charge.
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Fuel surcharge for small carriers
A fuel surcharge is an additional fee that carriers apply to shipping costs to account for fluctuating fuel prices. These surcharges are calculated using the national average fuel prices reported by the US Energy Information Administration (EIA). The EIA posts the average diesel price every Monday, and this information is used to determine the surcharge rates for the following week. Small carriers with direct shipper freight contracts must incorporate a fuel surcharge, and they typically pass on 100% of the surcharge to their leased-on owner-operators (OO). This allows the OO to offset the higher fuel costs.
The fuel surcharge is meant to help carriers manage the impact of fluctuating fuel prices on their operations. It is not meant to cover the complete cost of fuel but to offset the increase in diesel prices. Carriers typically increase their fuel surcharge by one penny for every six-cent increase in diesel price above their established baseline. For example, if a carrier sets their fuel price baseline at $2.50, they would incorporate a surcharge of $0.01 per mile whenever diesel prices rise above this figure. If the price increases to $2.56 per gallon, the surcharge would be $0.01 per mile, and if it increases to $2.62, the surcharge would be $0.02 per mile, and so forth.
Small business owner-operators and motor carriers can implement a fuel surcharge without government approval or filing an application with the DOT. They can use fuel surcharge calculators to determine the additional charge per mile to cover their extra fuel expenses. These calculators take into account the carrier's fuel price baseline and the current average diesel fuel price. By understanding how fuel surcharges work, small carriers can better plan for these charges and protect their bottom line.
It is worth noting that fuel surcharges can vary across different carriers, and some carriers may adjust their surcharges weekly or monthly based on fuel price fluctuations. Additionally, negotiating power can be leveraged to obtain discounts on fuel surcharges, especially for those with high shipping volumes.
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Fuel surcharge for LTL and TL shipments
Fuel surcharges are a common additional fee for LTL and TL shipments, and they are based on the average cost of a gallon of diesel fuel. The surcharge is calculated differently depending on the carrier, and it can be challenging to keep track of these costs as they are often added to the invoice after the shipment.
FedEx, for example, bases its fuel surcharge for FedEx Ground, FedEx Home Delivery, FedEx International Ground, and FedEx LTL freight services on the weekly published national U.S. on-highway average price for a gallon of diesel fuel. The surcharge for other FedEx services is based on the weekly U.S. Gulf Coast (USGC) spot price for a gallon of kerosene-type jet fuel. FedEx also applies a fuel surcharge to U.S. export freight shipments using FedEx International Express Freight (IXF) and FedEx International Airport-to-Airport (ATA) services, which is based on chargeable weight.
For Energy Transport Logistics, the fuel surcharge for LTL and TL shipments is subject to a weekly adjustment based on the price per gallon of diesel fuel stated in the U.S. Department of Energy's weekly Monday reports. The effective period for these surcharges is from Monday of the succeeding week through the next Sunday, and the surcharge percentage is reflected on the customer's invoice.
Estes Express calculates its fuel surcharge percentage for LTL and TL shipments based on the U.S. Department of Energy's National Average On-Highway Diesel Price, which is updated every Monday. Any adjustments to the National Average on Monday will take effect the following Wednesday. When the average diesel price falls below 361 cents per gallon, the fuel surcharge will increase or decrease in increments of 0.1% for LTL and TL shipments for each 2-cent change in the average price per gallon. When the average price exceeds 361 cents per gallon, the surcharge will adjust in increments of 0.2% for LTL and TL shipments for each 2-cent change.
LTL carriers, in particular, are known to apply fuel surcharges to almost every shipment, and these surcharges can represent a significant portion of the total shipping costs. Shippers can negotiate more favorable pricing contracts with carriers by collecting comprehensive data on their shipments to understand exactly how much they are paying in fuel surcharges per package.
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Frequently asked questions
There is no standard fuel surcharge rate, as it depends on the carrier. 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 (OO). OOIDA provides a fuel surcharge calculator to help members determine how much to add per mile to their all-in rate to make up for increased fuel prices.
The fuel surcharge amount will be charged on a mileage basis, reflecting the extra cost of the fuel used for the specific trip. The cost per gallon is region-specific and based on the average cost of fuel per gallon, the date, and the load's origination point.
The United States Department of Energy, Energy Information Administration (EIA) releases fuel prices weekly, typically on Tuesdays. When Monday is a federal holiday, the update will be published on Wednesday.
If you have a fuel discount card, you can protect yourself from sudden price increases. If you have a good fuel card savings contract for a fuel surcharge based on the EIA, you can also protect yourself from high fluctuations in pricing.
