Fuel surcharges protect businesses that transport their products across North America from volatile fuel prices by adding a fixed fee to each shipment.
Fuel surcharges are the total costs associated with using fuel. A fuel surcharge is a contract between the supplier and the customer that sets a standard rate (the surcharge) for the fuel and how the extra money will be paid above the standard rate, and what fuel prices trigger the surcharge or no charge at all.
There is no regulatory authority governing the calculation of a fuel surcharge. The surcharge was introduced in the 1970s in order to help consumers cope with the high prices caused by the oil crisis. The US government wanted the transportation industry to be protected from volatile fuel prices, and remain profitable, so they developed the fuel charge system.
Many LTL and TL carriers in Canada rely on the Freight Carrier’s Association of Canada (FCAC), which provides the industry rates for less than truckload and truckload shipments. The surcharge is calculated as a percentage: 8% for LTL, and 20.7% for TLL.
Many Canadian shippers match their surcharge to the cost of fuel by increasing the price to the surcharges when the price of fuel increases. They use three variables to calculate the fuel surcharge: the baseline fuel price; the current price for fuel; and fuel costs as a percentage of operating costs.
Base fuel price contracts all use a base price for fuel. Diesel fuel prices in the United States will be set at the U.S. price per gallon, while in Canada, they will be set at the Canadian price per liter. The base fuel price (BFP) is the fuel price used to determine the operating costs of an aircraft. The second part of the fuel surcharge is the base for the mileage. Like the base fuel rate, the base fuel mileage estimate is an agreed-upon figure that estimates the number of miles per gallon that the vehicle will achieve.
The agreement on how to determine the fuel price that leads to a surcharge is the third element of fuel surcharges. Both parties must agree on what prices will be charged, and at what intervals those prices are taken. The best source for the average price of diesel fuel is the government’s weekly fuel price calculations based on national averages.
Government agencies provide the average price for diesel across the country in Canada and the United States. Every week, Canada’s national traffic services update and revise the Fuel Surcharge. Every week, the US Department of Energy releases the average price for diesel fuel in the United States.
Fuel surcharges are just one of the costs of a freight rate. However, they are significant because they're based on fuel prices that may fluctuate. As long as fuel costs remain volatile, fuel surcharge rates are likely to remain high.
You're busy juggling multiple tasks at once. You’ll need to file documents, arrange for transportation, and keep track of your budget.
However, sometimes, especially in the transportation industry, managing that budget is easier to say than done.
A portion of the dollars you've allocated for freight transportation each month is spent on fuel surcharge fees — fees covering the cost associated with using diesel fuel to haul a load.
But since deciding how to handle these charges is up to you, it should be easy to ensure you’re getting the best possible bang for your buck. . . right?
Actually, this isn’t always the case. There are plenty of ways for carriers to manage their fuel surcharges.
Four of these tactics — the most common ones — come with their own unique set of pros, cons, and use cases that people might not be aware of.
Choosing the right method for you — one that will get your freight reliably moved at accurate prices — will require some well-rounded knowledge.
At Anderson Trucking Service (ATS), we've been helping companies move their freight since 1955. Over time, we've seen fuel surcharge scheduling techniques evolve significantly. However, without seeing this change or understanding the various options available, many shippers end up paying inaccurate prices
We’ll explain what a fuel surcharge is, why it’s important for trucking companies and what a fuel surcharge rate schedule looks like. Then, we’ll compare four of the most popular methods great shippers use today to manage their fuel surcharges.
After completing the course, you’ll be able to understand the impact fuel surcharges can have on your bottom line, and how managing your scheduling properly can help your business going forwards.
Here is an example of how a fuel charge is typically calculated. Let’s say that the base fuel price noted in the shipping contract was $1.50 per gallion, the base fuel mileage was 6.0 mpg, and the natural average fuel price was $3.00 per gallion. The distance between the two cities is 1,000 miles apart.
If you're having trouble managing your budget, or if you're not sure how to deal with unexpected costs, consider talking to a 3PL company. 3PLs help in several ways. And hey, at Labworks USA, we have connections with several 3PLs who also get into our DOT consortium services like our drug and alcohol testing compliance support for their truckers.
If you have further questions about the topic of fuel surcharges or any Trucking-related topics, facts, or news, feel free to reach out to us at Labworks USA.
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