What Is a Fuel Surcharge?
Last Updated April 26, 2024
To run a successful trucking company, you must charge appropriate rates. While owner-operators can pull in an average yearly salary of $323,696, much of this goes to covering their expenses — fuel, in particular.
In fact, rising fuel prices consistently rank as the top concern for the trucking industry as a whole. Because of this, many carriers and owner-operators often charge an extra fee known as a fuel surcharge. But what is a fuel surcharge, and what does a surcharge mean? Here’s what you need to know for your business.
What Is a Fuel Surcharge?
A fuel surcharge is an extra fee that is charged by trucking companies to help cover the constantly fluctuating cost of diesel fuel. As fuel prices increase or decrease, fuel surcharge rates can increase or decrease along with them.
The U.S. Department of Transportation estimates that fuel charges change about $0.10 per week on average, meaning fuel surcharges are always fluctuating with them.
There is no one way to calculate fuel surcharge. Each carrier typically has their own formula for calculating fuel surcharge.
What Is the Purpose of a Fuel Surcharge?
The primary purpose of a fuel surcharge is to ensure that carriers remain profitable even when fuel prices go up. Without a surcharge, fuel prices would significantly impact a carrier’s profit margins during times when diesel prices go up. These charges aren’t meant to fully cover fuel costs — rather, they are designed to make price increases more manageable.
If you’re in the process of writing a trucking business plan, it’s important to understand how fuel surcharges work.
How Does the Fuel Surcharge Work?
Each company has its own system for how to determine the fuel surcharge it will apply to its customers. However, most carriers base their fees on the U.S. Energy Information Administration’s reports for the National U.S. Average On-Highway Diesel Fuel Price. New averages are released weekly with both national and regional numbers.
Based on this information, carriers determine baseline ranges for fuel costs that will trigger different surcharges. Generally speaking, the more expensive fuel becomes, the higher the fuel surcharge will be.
The surcharge is added to the invoice for a load, and clients are required to pay that surcharge along with the rest of the applicable fees for the load.
How to Calculate Fuel Surcharge Fees
While different carriers have different systems for calculating their respective fuel surcharge fees, many of the underlying factors used for determining surcharge rates remain the same.
Truck companies will set a “base fuel price” based on the national average for diesel fuel as a baseline or reference point. This baseline serves as a threshold for applying the fuel surcharge.
When the current or actual fuel price exceeds the threshold, the fuel surcharge will be applied (or increased, if the company always charges a surcharge). It should be noted that the baseline fee is typically below the national average, allowing surcharges to consistently cover part of the current fuel prices.
Truck fuel economy also plays a role in determining the fuel surcharge, particularly when applying the surcharge at a per mile rate. Understanding the truck’s fuel economy helps you determine just how much “extra” it costs per mile to transport a load due to price fluctuations. On average, a loaded semi-truck gets about 6 mpg.
Per Mile Surcharges
With the above metrics in mind, carriers can quickly determine the current fuel surcharge per mile with a few key calculations.
Start by determining the difference in total fuel cost by subtracting current fuel prices from the original or base fuel price. Divide the difference in fuel cost by the truck’s miles per gallon to determine the total cost per mile. Finally, multiply the cost per mile by the total distance traveled (you may need to use a trucking mileage calculator to help with this). This provides a total amount for the fuel surcharge.
Another common practice is to simply charge $0.01 per mile for each six-cent increase in fuel prices above the baseline.
Percentage of Load Price
Though less common, another method that some carriers use to issue fuel surcharges is to calculate a percentage based on the price of the load. This surcharge percentage is also tied to the relation between current fuel prices and base fuel prices. Generally speaking, carriers will issue a table with differing surcharge percentages. As fuel prices increase, so will the surcharge percentage.
For example, a carrier might charge a 10.25% fuel surcharge based on the load price when fuel costs are within 10 cents of the baseline price. However, after fuel prices exceed that threshold, the surcharge increases to 10.5%. The higher the fuel prices, the higher the surcharge rate.
Example of Calculating Fuel Surcharge
With the above information in mind, let’s look at a fuel surcharge example to see this principal in action. For this example, we’ll use the more common method of setting a per mile surcharge.
Let’s say you set a base rate with a client for $4.00 per gallon for diesel fuel, but the current price of diesel is $4.20. The fuel price estimate would be calculated like this:
$4.00 – 4.20 = – $0.20
The difference in fuel cost is $0.20. Now, if your truck gets an average of 6 mpg, then you would calculate the cost per mile as follows:
$0.20 / 6 = $0.03
Finally, you would multiply the cost per mile ($0.03) by the total distance traveled for a particular route. For a 500-mile route, this would be calculated as:
$0.03 x 500 = $15
For this shipment, the total surcharge would be $15. It’s worth noting that you would get a similar result with a one cent per mile surcharge per six cent increase in fuel prices, which is why many carriers prefer that simpler alternative to a more complex fuel surcharge calculator.
Fuel Surcharge Calculator
Our fuel surcharge calculator prevents you from having to spend time adding up all these figures yourself. Simply add the fuel price baseline, average miles per gallon, and average diesel price and you will be provided your fuel surcharge per mile.
Don't let customers stall your cash flow
The No. 1 cause of cash flow issues for businesses is not getting paid on time. Your business's growth doesn't have to be hindered by late payments
National Average for Fuel Surcharge
While there is no national fuel surcharge standard, many carriers are content with applying a fuel service charge of $0.01 per mile for every six cents that diesel fuel prices increase above their base price. However, base prices can vary somewhat from carrier to carrier. Different carriers may also calculate their base fuel rates at different periods — for example, while some revise their base rates each week, others only do so on a monthly basis.
Where to Find a Current Fuel Surcharge Table
If you want information for a current fuel surcharge table for this week, the U.S. Energy Information Administration’s Gasoline and Diesel Fuel Update chart is an essential starting point.
The EIA updates this chart on Monday of each week, offering both a national average for diesel fuel prices, as well as regional averages for the East Coast, Midwest, Gulf Coast, Rocky Mountain, and West Coast. Better yet, the East Coast is broken down into New England, Central Atlantic, and Lower Atlantic subregions, and California is also specified as its own region due to its much higher fuel prices.
These charts also track week-over-week and year-over-year changes, which can be helpful in determining calculations for your own fuel surcharge chart.
Fuel Surcharge Laws and Regulations
While there are regulations determining other aspects of trucking (such as the need for trucking authority), there are no fuel surcharge laws that dictate or regulate how a trucking company determines its surcharge rates. That being said, many companies are willing to negotiate their fuel surcharge base rate with their clients. Negotiating the surcharge can help trucking companies win long-term clients against their competitors. Both parties should ensure rates are documented in writing when the contract is signed, however. Doing so prevents potential legal disputes in case a transaction goes astray or there’s a disagreement.
Whatever your negotiated fuel surcharge rates become, the policy should be clearly outlined in your business contract to avoid disputes regarding trucking invoices. This should also include stipulations regarding circumstances that could result in an increased rate.
Fuel Surcharge FAQs
What is the national average for current fuel surcharge per mile?
The most common fuel surcharge per mile is a $0.01 per mile charge for every $0.06 increase in diesel fuel prices above the agreed upon base fuel price. However, because base fuel prices can vary from company to company (and even contract to contract), it is hard to determine an exact average.
How often do national fuel surcharge averages change?
Fuel surcharges change in line with average fuel price changes, which fluctuate by $0.10 per week on average, according to the U.S. Department of Transportation. This information is typically based on data from the U.S. Energy Information Administration’s Gasoline and Diesel Fuel Update chart, which is updated on Monday of each week. However, trucking companies don’t necessarily update their base fuel prices and surcharge rates that often. Some companies will update their surcharges weekly, while others only update surcharges on a monthly basis.
How do I calculate fuel cost based on mileage?
To calculate fuel costs based on mileage for a fuel surcharge, start by calculating the difference between your original or base fuel price and the current fuel price. Take the difference in fuel cost and divide it by the average miles per gallon achieved by the truck/fleet to determine the cost per mile. Finally, multiply the cost per mile by the total distance traveled to get the total fuel surcharge.
While this can give you a more exact calculation of fuel costs (and surcharges) based on mileage, a simpler solution is to charge a surcharge of $0.01 per mile for every $0.06 increase in fuel prices above the original/base price.
Are there fuel surcharge laws?
No, there are not any laws that regulate fuel surcharge amounts or how these charges should be negotiated between trucking companies, owner-operators, and their clients. However, all negotiated fuel surcharges must be included in a written contract between a trucking company and its client to avoid any potential legal issues in case of a dispute.
Need Funding for Your Trucking Company?
If you’re an owner-operator in need of financing for your trucking company, freight factoring may be the solution you’re looking for. Freight factoring is a scalable funding option for trucking business owners that allows truckers to get paid in a matter of days, rather than weeks.
If you’re interested in learning more about how altLINE’s freight factoring can help your company, give us a call at +1 (205) 607-0811 or fill out our quote form.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.
