What is Fuel Surcharge? Everything You Need to Know
The price of fuel has reached record highs in recent months. While this uptick in fuel costs isn't something to ignore, professional drivers know that fuel price volatility is nothing new.
If you’re a driver, you know that the fuel costs you quote can be substantially different from the final amount once it’s time to make a delivery. Ongoing fuel price fluctuations can seriously hurt the profitability of your business — especially when it comes to delivery management and when you have shipments scheduled months in advance.
Fortunately, implementing a fuel surcharge into your shipping contracts can protect your driving business’ bottom line and prevent you from eating unnecessary costs. Read on to learn what fuel surcharges are and how to implement them to bolster your bottom line.
What is a Fuel Surcharge Fee?
A freight fuel surcharge is a fee that drivers can charge shippers to account for changes in fuel prices between a delivery’s scheduling and its execution.
For example, the fuel cost may be $5.15 per gallon when you book a delivery with a shipping client. However, fuel price increases can fluctuate and go up to $6.00 per gallon by the time of delivery. If your route spans hundreds of miles, this increased fuel cost can significantly impact your business’ expenses.
Fuel surcharges enable owner-operators and driving business owners to offset some of their fuel expenses, thereby maintaining consistency and overall profitability.
Why did Fuel Surcharge Fees Come About?
The need for fuel surcharge fees became apparent after the 1970 OPEC fuel spikes. At the time, the US government endorsed using fuel surcharges to protect transportation professionals from fuel price volatility.
Fuel surcharges became even more widespread after the hurricane Katrina disaster in 2005, when fuel prices surged to $4.00 per gallon for the first time. Without fuel surcharges, this price hike could have put many companies in the transportation industry out of business.
Fuel surcharges are just as valuable as they were 50 years ago, and this will remain the case as long as fuel prices continue to fluctuate.
Why are Fuel Surcharges Important?
Fuel surcharges are important because fuel prices can be uniquely volatile. Moreover, fuel costs are one of the most significant expenses in a driving business’ budget.
Including accurate fuel costs in your invoice calculations is crucial if you want to maintain your business’ reputation, profit margins, and long-term viability.
Computing the Fuel Surcharge Rate
Are you curious about how to calculate fuel surcharge? Fuel charge calculations are not regulated or enforced by any governing body. As a result, it’s up to drivers and owner-operators to calculate and implement these fees on their own.
Most drivers use a variation of the following formula to computer a fuel surcharge calculation:
(Actual fuel price - base fuel price) / miles per gallon fuel consumption X distance traveled
Here’s a closer look at each of the factors in this formula to calculate the fuel surcharge fee:
- Fuel base price – The fuel base rate is the average fuel cost when a delivery is booked. You can determine average weekly fuel costs per region on the US Energy Information Administration’s (EIA) website.
- Actual fuel price – The actual diesel fuel price is the average cost of diesel fuel in your driving region during the week of the delivery, as outlined by the EIA. This price may be higher or lower than your base fuel price, depending on the price fluctuations that take place in the interim.
- Miles per gallon fuel consumption – This factor accounts for the mileage your specific freight vehicles get from 1 gallon of fuel. Most trucks can get around 5 to 7 miles per gallon, depending on their size and construction.
- Distance traveled – The distance traveled is the number of miles driven during a delivery, starting at inventory pickup and ending when the delivery is complete.
How to Use Fuel Surcharges
There are no set regulations on how to calculate diesel fuel surcharges. Nevertheless, being transparent with your clients and making accurate calculations is indispensable for maintaining your business’s reputation and profitability.
You can improve the accuracy of your fuel surcharge estimations by keeping organized records of your fuel charges during drives. Doing so is easy with the help of a secured fuel card, like the one from AtoB. Fuel cards enable you to be precise in your calculations and inform your customers upfront about the final fuel expense costs of their delivery.
Save Money on Fuel Today With an AtoB Fuel Card
If you’re looking for an easy way to save money and track your fuel expenditures, apply for an AtoB fuel card. You can use it to pay for any business expenses you incur, including fuel, insurance, maintenance, tolls, and more. Additionally, it can help you prevent any last mile delivery challenges and help reduce fleet expenses as you strive to drive revenue for your business.
The AtoB fuel discount program also offers exclusive discounts with no discount limits or spending minimums, enabling you to save up to 25¢ per gallon. What’s more, it’s universally accepted — which means you can use it everywhere, from mom-and-pop pitstops to truck stops nationwide.
Build trust with your customers while you save and sign up for an AtoB fuel card today.
Geotab. The State of Fuel Economy in Trucking.
NPR. Gasoline prices hit a record high, again.
The Washington Post. Long lines, high prices and fisticuffs: The 1970s gas shortages fueled bedlam in America.
The Wall Street Journal. Gasoline Prices Surge Above $4 a Gallon, With No End in Sight.
Geotab. The State of Fuel Economy in Trucking.