top of page

What is a Fuel Surcharge?

Updated: Jun 13

A fuel surcharge is a mechanism in the trucking industry that helps balance the fluctuations in the cost of fuel. Incorporating a fuel surcharge into transportation pricing became a widely accepted practice in 2005 after fuel spiked above $4.00/gallon for the first time in U.S. history after Hurricane Katrina. This spike in fuel prices would have put the trucking industry out of business if the fuel surcharge hadn’t offset the additional cost of fuel.


Driver fueling up thinking about fuel surcharge

In today’s world, there are a variety of sources for fuel information and the fuel surcharge is calculated in many different ways. For simplicity, we will look at the most common method to calculate a fuel surcharge.


The Fuel Surcharge Equals:

  1. The price of fuel: $4.85/gallon (Example)

  2. The base price of fuel in a shipping contract: $1.25/gallon (Example)

  3. The increased cost of fuel: $4.85 - $1.25 = $3.60/gallon

  4. Divided by the average miles per gallon of a truck = 6.5 mpg

  5. The fuel surcharge is $3.60 divided by 6.5 = $0.55 cents per mile.

So if a shipping contract offers to pay $2.00/mile base rate, plus a fuel surcharge, you would get paid $2.55/mile based on the example above.


You often hear Independent Contractors who say they “make money” off of the fuel surcharge. The higher the price of fuel, the more they make! How can that be? To win this game you have to get better fuel economy than the mpg the fuel surcharge is based upon.


Let’s say we are hauling a load 1,000 miles and the fuel surcharge is paying us $0.55 cents per mile based on the calculations we did above. That means we will get $550 to pay for the higher fuel cost. Let’s compare what we get with 7 mpg versus what we get with 6 mpg.

At 7 MPG

  1. If we need to travel 1,000 miles at 7 mpg we will need to buy 143 gallons of fuel

  2. This means the cost of fuel at the pump is 143 gallons times the price of fuel at $4.85 which equals $692.86

  3. But our fuel surcharge compensation is $0.55 per mile times 1,000 miles which equals $550

  4. So the net cost of fuel after our fuel surcharge is $692.86 minus $550 which equals $142.86

  5. Where we save money is with our base rate built on the cost of fuel being $1.25 times the amount of gallons needed to travel 1,000 miles at 6.5 miles per gallon which is 153.85 x $1.25. This equals $192.31

  6. So we paid $142.86 net for fuel when the base price was $192.31 which means we “made” $49.95 in profit.

At 6 MPG

  1. If we need to travel 1,000 miles at 6 mpg we will need to buy 167 gallons of fuel

  2. This means the cost of fuel at the pump is 167 gallons times the price of fuel at $4.85 which equals $808.33

  3. But our fuel surcharge compensation is still $0.55 per mile times 1,000 miles which equals $550

  4. So the net cost of fuel after our fuel surcharge is $808.33 minus $550 which equals $258.33

  5. Where we lose money is with our base rate built on the cost of fuel being $1.25 times the amount of gallons needed to travel 1,000 miles at 6.5 miles per gallon which is 153.85 x $1.25. This equals $192.31

  6. So we paid $258.33 net for fuel when the base price was $192.31 which means we “lost” $66.02 in potential savings

The chart below shows this scenario at different Miles per Gallon where 6.5 miles per gallon is the average miles per gallon of a truck.


Fuel surcharge table

One thing to keep in mind is that fuel prices typically adjust faster at the fuel pump than fuel surcharges adjust in shipping contracts or the spot market. This means that in a falling fuel market you will pay less for fuel than the fuel surcharge is paying until fuel levels off. This can mean a windfall of cash during falling fuel prices. On the contrary, when fuel prices rise you will be left with a cash deficit until fuel prices level off. This is something to be prepared for with extra cash in your savings account so you can weather the fuel cost increases.


Overall, the fuel surcharge is a fair mechanism to level the playing field and take risk away from truckers during times of fluctuating fuel prices. The fuel surcharge can be a difficult thing to understand when it comes to calculating rates and what is fair. So make sure you take time to read and understand how you will be compensated for the excess cost of fuel!

17,314 views4 comments

Recent Posts

See All

4 комментария


I would like to see an article written about the legalities of carriers contracting independent contractors to haul freight at a percentage of a the cost of a load while not actually disclosing what the true load amount is. I remember a class action lawsuit that cost A major service company in the oil field millions. And funny how every time my company has an issue with guys turning down loads based on legitimate financial reasons an article full of propaganda that aligns really freaking close to the exact situation persuading the reader to conform in some major that is favorable and supports the company’s agenda comes out. I mean how stupid do they think we are

Лайк

Brokering without a license, I believe I’ve read about this and the risks of such an “independent entity” being included in lawsuits Against the Carrier and the Shipper.

Лайк

If the fuel surcharge that’s built into the contact is 25 cents which lets say is 10 cents below the market rate, you should be able to take off 10 CPM as a loss.

Лайк

Russell Rego
Russell Rego
08 июл. 2021 г.

But you have Landstar agents who tell BCOs that the fuel surcharge is built into the contract. So when the current Fuel Surcharge based on EIA retail is, lets say 34 cents, they tell you their customer only pays 25 cents, and pocket the rest. So when the price of fuel goes down, their fuel surcharge should be higher than 25 cents, since its built into the contract. But no!!! Their 25cents surcharge drops. Whenever I read articles like these, written by a Tax and Accounting business, I ask myself why? Why are they trying to teach small business truckers how to run their operation. Perhaps they have a financial interest in a trucking or brokerage company? Razzle dazzle 'em…


Лайк
bottom of page