What you need to know: Currently there’s no rule, law, or regulation mandating a fuel surcharge.
- Small carriers with direct shipper freight contracts must incorporate a fuel surcharge.
- Good carriers will typically pass through 100% of the fuel surcharge to their leased-on owner-operators (OO). This allows the leased OO to offset the higher price of fuel.
- Make sure your lease-agreement includes the 100% pass through.
A fuel surcharge is a separate, additional fee added above the current contract rate when the cost of fuel exceeds a defined level.
Key terms to understand:
- Average Miles Per Gallon (mpg) – The average fuel consumption for a loaded big rig today is about 6 mpg.
- Fuel Price Baseline – This is the fuel cost amount you used in figuring your cost of operation.
- Average Diesel Fuel Price – The U.S. Energy Information Administration (EIA) posts the average diesel price every Monday.
Today, carriers typically increase their fuel surcharge one penny for every 6 cent increase in diesel price above their established baseline.
- For example, if a carrier figures their cost of operation with a fuel price baseline of $2.50, then they would incorporate a fuel surcharge whenever diesel prices rise above this figure.
- If the price of fuel increased to $2.56 per gallon, then the carrier would institute a fuel surcharge of $0.01 per mile.
- If fuel increased to $2.62, they would charge $0.02 per mile and so forth.
The calculation is simply this…
- Take the current fuel price, which as of 3/14/22 was $5.25 per gallon,
- minus the fuel price baseline ($2.50) taken from the carrier’s cost of operation figures,
- which equals a difference of $2.75 per gallon.
The second calculation is to…
- divide the difference by the average mpg – or $2.75 ÷ 6.0 mpg = $0.46 per mile.
Or, one could simply add a 0.01 cent per mile (cpm) surcharge for every 0.06 cent rise in the pump price of fuel as mentioned earlier.
Key take aways:
- A fuel surcharge isn’t meant to cover the complete cost of fuel.
- You cannot get around knowing your cost of operation, meaning you need to know how much to charge in order to make a profit.
- Remember a fuel surcharge is meant to help offset an increase in diesel prices.
- Most OO’s running under their own authority operate in the spot market, meaning they go through brokers to obtain freight rather than having a contract with a direct shipper.
- Brokers don’t typically pay a fuel surcharge, so you will want to incorporate your fuel surcharge in your all-inclusive rate negotiations.
OOIDA’s Fuel Surcharge Calculator helps you know what to add per mile to your all-in rate in order to make up for the increase in fuel prices.
How it works: If an owner-operator sets their fuel price baseline at $2.50 after reviewing their cost of operations, but the average diesel fuel price increased to $5.25, you would enter…
- $2.50 into the fuel price baseline field,
- 6 into the average miles per gallon field, and
- $5.25 for the current average diesel fuel price (Find this by going to U.S. EIA’s website.)
The total per mile surcharge figure is $0.46 cpm.
Small business owner-operators: JUST DO IT
How to implement a fuel surcharge
With the price of diesel fuel spiraling upward to record highs, if you have not incorporated a fuel surcharge into your operation, you must do it now. Small business owner-operators and motor carriers do not need to get government approval or file an application with DOT to implement a fuel surcharge. Here’s how to do it.