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.
Finally, add $0.46 per mile to whatever the base spot rate is in order to cover your extra fuel expenses.
Go deeper to know more about your cost of operations or watch our videos.
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.