How Are Fuel Surcharges Calculated?
What is a Fuel Surcharge? This is an additional fee that carriers like DHL, UPS, and FedEx charge on top of basic shipping rates. These charges are designed to help these carriers cover the costs associated with fuel, especially given the constant fluctuation in fuel prices. Jan 06, · 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.
There are multiple regulations that oversee the LTL and FTL shipping industry, however, fuel surcharges have no official guidelines or government oversight — for now. The truth is that many logistics companies have used fuel surcharges as a hidden profit margin that shippers simply factor into the overall cost of transporting commodities.
And this fact is often a public relations nightmare for logistics carriers. However, there are a few general rules surrcharge ethical carriers factor into their fuel surcharges in order to increase transparency with their customers while waht proposing fair compensation for transporting their goods. Fuel for trucks and other equipment used in the supply chain is never a consistent price. Fuel surcharge fees are intended to provide an average cost of fuel, to ensure the carrier does not incur losses due to the always-changing fuel costs.
Fuel surcharges were initially established because agreements to ship how to issue share certificate is a contractual agreement between the shipper and the carrier.
The problem is since fuel prices can and always change based on multiple uncontrollable elements, a fuel surcharge is needed to protect the carrier against loss in case fuel prices rise during the terms of the contract.
However, there are a few general criteria for calculating fuel trycking that most professional carriers follow. To begin with, all fuel surcharges are typically calculated as a percentage of the base fuel rate and are dependent on three variables:. The base fuel rate is a price that determines when the fuel surcharge will be surcnarge. This variable factors in the fuel economy or miles per gallon that the truck averages. Most wheel trucks with a full load average of about 6.
This is the only area of a fuel surcharge that is regulated. The US Department of Energy determines the interval and source of the current average fuel price. They are published on a weekly basis. Here is a real-world example of how a fuel surcharge is typically calculated. The distance of the shipment is 1, miles. Obviously, the goal of any shipper and carrier is to negotiate a fuel surcharge that is fair to both parties. There are a few items that shippers should consider when deciding on a carrier to ship their goods.
Fuel surcharges do not have to be a huge secret, for the carrier or the shipper. By openly discussing the fuel surcharge, both parties will develop a strong relationship that is based on truth and trust. Need to find the best prices for moving your freight?
Let Redwood Logistics help you get the process started. LOG IN. How Are Fuel Surcharges Calculated? Contact us today.
More Show Topics
A fuel surcharge is an extra fee that trucking companies or third parties charge to cover the fluctuating cost of fuel. 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.
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.
Currently, the UPS surcharge is 4. Another, less popular method of calculating is based on a percentage from load price. No federal administration regulates a fuel surcharge policy. Each shipper and carrier individually negotiate and set it in contracts. 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. 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.
This gives carriers a competitive advantage in attracting 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. What is a national fuel surcharge? How is a fuel surcharge calculated? 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 miles per gallon.
The average wheeler gets about 6. Current fuel price fluctuation: The U. 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. Are there any regulations on a surcharge? Tips for Shippers Remember, most carriers are ready to negotiate a fuel tax level. Subscribe to our blog to get industry insights and stay on top of the latest news!
Thank you! Your submission has been received! Something went wrong. Get a Quote Compare the best freight rates from more than 45, carriers Contact Us.