Gas prices have reached and surpassed record highs multiple times since the beginning of this year, and experts predict that the summer driving season and hurricane season could send fuel costs soaring even higher. Perhaps no one is affected more by these high prices than the trucking industry.
To compensate for fluctuating fuel costs, carriers and businesses add a fuel surcharge to their current contracted rates. If your business utilizes LTL or FTL trucking, it’s important to understand what a fuel surcharge is and how it’s calculated.
What Is a Fuel Surcharge?
While shipping contracts are often agreed upon months or even years in advance of actual transportation dates, the price of fuel changes frequently (sometimes within the same day). Because fuel is one of the largest expenses for carriers, many use the fuel surcharge as a way to stabilize their bottom line and stay in business when oil prices skyrocket.
When Did Carriers Begin Implementing Fuel Surcharges?
The practice of adding surcharges isn’t new. It started in 1973 during the Arab oil embargo. At that time, the trucking industry was heavily regulated by the now-defunct Interstate Commerce Commission (ICC). When OPEC began a six-month oil embargo against the United States, gas prices increased dramatically, and the ICC allowed carriers to add surcharges.
Once fuel prices normalized, the surcharges were removed, only to resurface in the 1990s after a steep rise in diesel prices. Since then, carriers routinely add a surcharge, especially when fuel prices spike.
In the wake of the supply chain backlog created by the COVID-19 pandemic, oil prices began to creep up in 2021. Prices were impacted again after Russia invaded Ukraine. The subsequent sanctions imposed upon Russia limited the amount of oil they could export and caused fuel prices around the globe to rise significantly. In response, carriers have been forced to increase their fuel surcharges to compensate for fluctuations in the cost of fuel.
How Are Fuel Surcharges Calculated?
There are no federal guidelines or regulations for determining fuel surcharges. Every carrier has its own calculation method, and most will utilize the retail diesel fuel price data published weekly by the U.S. Energy Information Administration (EIA) as the index for determining the percent or per mile fuel surcharge to be applied. The EIA analyzes prices from fuel stations around the country and provides a national average as well as separate averages for each region.
There are three basic methods used by carriers to apply a fuel surcharge. Truckload carriers will usually apply a flat amount or a charge per mile. It will depend on the distance traveling and cost of fuel in the region(s) the freight will be moving. Less than truckload (LTL) carriers will apply a fuel surcharge using a percent of the linehaul.
How Do I Know I’m Being Charged Fairly?
While the above formulas seem straightforward, the truth is that fuel surcharges are confusing because there are many variables that carriers factor into the final fee. For instance, is the shipment moving through a region where fuel prices are higher than the national average? Or does the carrier receive fuel discounts from certain providers? There is a difference in LTL carrier application, where some only apply it on the line-haul, while others will apply it on additional services that require fuel, such as redelivery.
Because there is no standard way to determine the surcharge, it’s difficult for customers to know if they’re overpaying. This is where using a supply chain management company like Nexterus can save you money.
How Can Nexterus Help?
Nexterus offers a full line of services customized to help you manage every aspect of your freight transportation. Our administrative services include a detailed audit on each freight bill, and our customer care team is available 24/7/365 to handle any issues that may arise. To learn more about all the benefits Nexterus can offer you, fill out and submit our contact form. We look forward to working for you!