The ever-changing cost of fuel often makes it difficult for truck drivers, trucking companies and freight brokers to decide what to charge for shipment. When a customer orders a particular load, diesel costs might be relatively low, leading to a low estimate. By the time the shipment leaves, prices can rise, leading to higher costs for the trucking company.
Many trucking businesses charge diesel surcharges to account for changing costs. When a shipment is delivered, these surcharges are added to a receiver’s price. They are typically calculated based on the cost of fuel at the time when the load is on the roads. By adding a surcharge, trucking companies can protect themselves from changing prices and make every trip profitable.
What Is a Fuel Surcharge in Trucking?
Fuel surcharges are a special rate added to invoices to cover diesel costs. No regulation exists to determine how companies calculate and charge for surcharges. Usually, trucking companies add the cost ahead of time based on projections of changing costs or after transport based on the actual prices paid.
A fuel surcharge may come as a percentage of the total shipping cost, or companies may charge a dollar amount based on fuel costs. The surcharge makes up the difference between the diesel price quoted and the actual price drivers pay for the fuel at the time of shipment.
What Impacts Fuel Surcharges?
When establishing surcharges, you may benefit from knowing the typical factors companies use to determine costs. While each company can set up its fuel charge system differently, most use similar data to decide on the best rates. Three main factors might increase or decrease surcharges.
1. Base Fuel Price
The base price is used to estimate costs when a customer first books shipping services. Trucking companies can determine the national or regional averages in a given week or month and use this number as the base fuel price.
2. Fuel Price Changes
A shipment may leave weeks or months after trucking services are booked, so companies often update their surcharges based on current costs. For example, if the diesel price was $4 per gallon when a load was booked and it increased to $4.25 when the shipment was on the road, the cost difference would be $0.25, leading to a surcharge of about $0.25 per gallon of diesel.
3. Truck Fuel Economy
A truck’s fuel economy or consumption also determines the surcharge. This metric indicates how many miles per gallon a vehicle can drive. Heavy-duty trucks usually get about 6.5 miles per gallon today. A truck with a better fuel economy may contribute less to a surcharge because it can go farther with less diesel.
Many factors influence a truck’s fuel economy. These include:
- Truck used: An older or less fuel-efficient truck may get worse mileage, leading to a higher surcharge.
- Cargo hauled: Trucks hauling heavy cargo often have lower fuel efficiency than trucks with light loads.
- Driving conditions: During severe winter weather or other storms, vehicles need more energy to travel the same distances.
How Is Fuel Surcharge Calculated?
While most companies use the three factors above to determine their fuel surcharges, each company can set their surcharge prices as they see fit. No exact calculation exists to determine what the charge should be. Those seeking trucking services may find information about how particular companies calculate these charges on a business’s website.
For a general idea of what prices should be, you can use the following surcharge calculation:
- Subtract the original fuel price from the updated price to find the difference in cost (updated price – original = cost difference).
- Divide the difference in fuel cost by a vehicle’s mileage per gallon to determine cost per mile (difference ÷ miles per gallon = cost per mile).
- Multiply the cost per mile by the distance traveled to get a surcharge amount (cost per mile × distance traveled = surcharge).
An Example of a Fuel Surcharge Calculation
Here’s an example to demonstrate how the calculation works. First, determine your base fuel price, the updated price, your truck’s fuel economy and distance traveled. We’ll use these numbers for the example:
- Base fuel price: $4 per gallon
- Updated fuel price: $4.25 per gallon
- Truck fuel economy: 6.5 miles per gallon
- Distance traveled: 1,400 miles
Once you determine those numbers, follow the three calculations given above:
- $4.25 per gallon – $4 per gallon = $0.25 cost difference
- $0.25 cost difference ÷ 6.5 miles per gallon = $0.04 cents per mile
- $0.04 cents per mile × 1,400 miles traveled = $56 surcharge
How to Manage Fuel Surcharges as a Driver or Shipper
Varying fuel costs can make determining surcharges difficult. As a trucking company owner or driver, you want to ensure fuel costs don’t add to your business expenses. You also want to reduce load costs for your clients so they remain loyal to you. Here are a few strategies to lower costs for clients and increase satisfaction in your business.
Combine Shipments
You can combine multiple shipments that take up less than a full truckload to reduce the amount each shipper pays. For example, a $56 surcharge could be split between two parties, not just one.
Refine Your Record-Keeping
When prices increase, your customers will likely want to know why. When you have data to refer to, you can give a more transparent answer. You can keep records based on gas payments from your drivers or use records provided by the Energy Information Administration. This governmental body publishes weekly diesel price updates that you can use as a third-party reference point.
Consider Using Base Fees
Creating a new surcharge for every shipment can be time-consuming. Instead, you might switch to a base fee calculated by identifying trends from past invoices. You can charge this fee before making the shipment and keep it consistent no matter how diesel prices fluctuate. A competitive fee can protect you from significant losses while building shipper trust.
Keep Customers Informed
Whichever way you manage surcharges, you can maintain a loyal client base by notifying customers of changes as they occur. When implementing a surcharge for the first time or switching to a fee system, communicate and explain why you are making the change. Educate new customers about your current surcharge system and rates, making it clear that prices may change over time and explaining why.
Research Partnerships
Shippers can benefit from researching regional or national partnerships. Freight carriers have different services or specialties — one might offer a better rate for local shipping, while another might be ideal for cross-country shipping. By keeping your options open each time you ship, you can find carriers that best suit your needs at a price you’re willing to pay.
Manage Your Fuel Costs With a Gas Card
With rising diesel costs that vary widely from week to week, you may seek to develop a fuel surcharge system that benefits you and your clients. A fuel card from Porter Freight Funding can keep your business competitive by giving you up to $0.60 off every gallon.
Learn more about how a fleet card could benefit your business by contacting our team at Porter Freight Funding today.