Fuel is one of the highest and most volatile expenses for road (rail and others as well) transportation carriers in moving freight.
A Fuel Surcharge (FSC) is usually calculated as some percentage of retail fuel price, and added to the base shipping rate. This allows transportation companies to set a fixed base rate, and let FSC move flexibly cover the cost of fuel increases beyond a set level. With the extreme fluctuation of fuel prices, it is easier for many companies to have these 2 different charges.
For the shipper, however, this can be a huge sticker shock if FSC charges are new to them, or if they’ve switched from using a carrier not using this system. It might look like a nice deal on moving their freight, until they see the FSC charge which with some carriers can be as high as 75% of the base rate charge!
How is Fuel Surcharge Calculated?
Unfortunately there is no standard across the trucking industry in regards to how the FSC is calculated, nor is it mandated or regulated by the government.
First, to establish the base cost of fuel, carriers use weekly or monthly published prices from the US Energy Information Administration, or other sources. Here is a link for USEIA for which is used to calculate the average fuel price
Next (it gets a bit tricky), but generally there are 2 ways carrier-specific FSC is calculated. One is a percentage that is multiplied against the base rate, and the other is a % on the distance of the trip. FSC is then added to the carrier’s invoice, asking with the base rate.
How to Calculate FSC as Percentage of the Base Rate:
Rhonda at Rhonda’s Steel Mill needs her freight moved to her customer. Rhonda is told it will cost $1000 + FSC (lets say 62.5%) to move the freight. Rhonda multiplies $1000 by 1.625 (100% + FSC), which gives her a total of $1,625.
How to Calculate FSC by Mileage or Distance:
Bill at Bill’s House of Plastic also needs his freight moved. Bill is told it will cost $1000 + FSC($0.20 per mile), on a 500 mile trip. So Bill multiplies 500 miles by $0.20, which in this example is $100. So Bill’s total freight bill would be $1100.
FSC- What to Expect when Booking a Shipment
When booking a shipment, customers can refer to the trucking company base rate, and roughly calculate the additional FSC using the carrier’s FSC calculation method at current fuel price.
While certain carriers will publish and update their fuel surcharge rate in advance (so FSC cost is known at the time of booking), some calculate FSC at the time of billing, using the fuel cost at date of shipping.
Carriers can and do adjust their FSC depending on if the shipper is willing to pay a higher base rate, or if there is a consistent volume of freight that will be moved by the carrier.
If you’d like help understanding Fuel Surcharges, or see how you can combat the rising costs of Fuel Surcharges, give us at Bullwhip Logistics a call or email! We are always happy to help those find a better solution to cheaper Fuel Surcharge Rates.