What is fuel surcharge

Fuel prices can go up and down because of uncontrollable factors. So, to make sure that the owner operators don’t lose money if fuel prices rise, they have “fuel surcharge” in there contract

So a fuel surcharge is an extra charge added to the cost of transporting goods from one place to another. This extra fee helps cover the changing costs of fuel. Trucking companies or owner operators add this fee to make sure they can pay for the diesel fuel needed to move the goods. It’s a way to make sure that they get enough money to cover the higher fuel expenses.

What is a fuel surcharge

How is the fuel surcharge calculated?

Firstly, it’s important to know that there isn’t a single method for calculating fuel surcharges- different carriers use different methods. But it is calculated on the basis of three factors:

1. Base Fuel Price

The base fuel price is a price that acts as the threshold. When the fuel price exceeds the base price, fuel surcharge is activated. It is mainly determined on the basis of the cost of operating a truck. For instance, if the base fuel price is set at $2.50 per gallon, and the fuel cost surpasses this baseline, say $3.00, fuel surcharge is activated.

2. Average fuel mileage /Miles Per Gallon

It represents how many miles a truck can travel on a gallon of fuel. This can vary depending on the specific truck, the load it’s carrying, and different driving conditions. Typically, trucks cover a range of 5 to 7 miles on a gallon of fuel. On average, an 18-wheeler achieves about 6.00 miles per gallon.

3. Average diesel fuel rate

It indicates the current diesel costs at the time of the shipment. The U.S. Energy Information Administration (EIA) publishes the average diesel fuel price every Monday. 

Example:

Damon is an owner operator operating on a lane from Chicago to Houston and price for the entire shipment is $2000. His truck gives an average mileage of 6 MGP. The base fuel price in the shipping contract is $2.50 and he paid $4.1 dollars at the fuel station. 

Step 1: Calculate the difference in fuel price

It is the difference between base fuel price and the average diesel fuel price. The formula for calculating is as follows:

Difference in fuel price = Base Fuel Price – Average diesel fuel rate

In the above example, Damon’s base fuel price is $2.50 and the average diesel fuel price is $4.1. So the difference in the fuel price is,

= 2.50 – 4.1

= $1.6

Step 2: Determine your fuel surcharge

Now it’s time to determine your fuel surcharge. To do so, divide the difference in fuel price which you just calculated with the miles per gallon. The formula is:

The fuel surcharge = Difference in fuel price / Miles per gallon

To calculate the cost per mile of Damon, multiply the difference in the fuel price we just found out with his average miles per gallon (6 MGP)

= 1.6/6

= 0.26 per mile

The average distance between Chicago to Houston is 1000 miles. So, his fuel surcharge is:

= 0.26 * 1000

= $260

So, Damon’s fuel surcharge per mile is $0.26 or $260 for 1000 miles.

The fuel surcharge for the same example for different miles per gallon is as follows:

Miles Per GallonBase Fuel PriceFuel CostDistance Traveled Fuel Surcharge per mileFuel Surcharge for 1000 miles
5$2.50$4.110000.32 (1.6/5) $320
6$2.50$4.110000.26 (1.6/6)$260
7$2.50$4.110000.22 (1.6/7)$220
8$2.50$4.110000.2 (1.6/8)$200
9$2.50$4.110000.17 (1.6/9)$170
10$2.50$4.110000.16 (1.6/10)$160

In this example the fuel cost was $4.1 per gallon. But it may go up. So the more efficient your truck is, the less money you’ll need to cover the higher fuel expenses. That means there is a high chance that you’ll be making a good amount of money. But on the downside the lesser your miles per gallon, the lesser will be your profit.

How to negotiate fuel surcharge rates as an owner operator?

One of the major problems carriers or the owner operators make is they negotiate rates based on the current fuel prices. But the thing is fuel prices are not constant. It keeps going up. To overcome such problems indicate in writing that the rate you give the shipper depends on the current fuel price when signing the contract. Also, put it in writing that if fuel prices go up, the price you charge will also increase by a certain cent for every 4 or 5 cents increase according to the U.S. Energy Information Administration Index (EIA).

Our Free Fuel Surcharge Calculator

Why waste time in doing the math when you could use our free fuel surcharge calculator? Just enter a few details and boom your fuel surcharge is automatically calculated. The good part is when you enter the fuel date and the jurisdiction, the national fuel rate on that particular date is automatically taken into account. So you don’t need to check or remember the fuel rates.

Conclusion

As we wrap up this discussion, it’s clear that these surcharges are more than just additional fees, they are your shield against the volatility of fuel prices, and paves way for a steady and profitable journey. They help in fair pricing in the trucking world.

Yoga Laxmi
Social Media Marketer at OpenFR8 | More posts

I am copyright writer with OpenFR8. I take a little bit of time to complete my blogs because I undergo research and analysis of each and every article to gather accurate information. For me, writing is not just a job; it feeds my creativity and desire to share insightful information with readers. As a writer, I like to present content that is valuable and easily understood by every individual. I believe in the power of words, and if they are used in a good manner, they can create many positive changes around us.

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