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What Is a Fuel Surcharge?
A fuel surcharge is an adjustment to a freight rate that rises and falls with the price of diesel. The rate agreement sets a base diesel price. When the published price moves above that base the surcharge goes up, and when it falls back the surcharge comes down.
It lets a carrier hold a linehaul rate for the life of an agreement while the cost of fuel is passed through as it changes.
How a surcharge is calculated
A surcharge schedule typically sets three things:
- A base price. The diesel price at which the surcharge is zero.
- An index. The published diesel price the schedule is read against, and how often it is read.
- A step. How much the surcharge rises for each increment of the index above the base, in cents per mile, cents per gallon hauled or a percent of linehaul.
Say an agreement sets a base of $3.00 a gallon and adds 1 cent a mile for every 6 cents the index sits above the base. If the index reads $3.60, it is 60 cents over, so the surcharge is 10 cents a mile: $15.00 on a 150-mile haul. If the index falls back to $3.00 or below, the surcharge is zero. These figures are chosen to show the math; they are not current or typical rates.
A surcharge quoted as a percent of linehaul grows with the haul, while one quoted in cents per gallon stays the same however far the load goes. Fuel hauling rates: per mile to per gallon works both through on a load, and the freight cost per gallon calculator takes a surcharge as one of its inputs.
Which diesel price it tracks
The agreement names the index. One public index is the on-highway diesel price that the U.S. Energy Information Administration (EIA) publishes every week in its Gasoline and Diesel Fuel Update, for the US as a whole and for each PADD. EIA notes that these prices include all taxes, so they are retail pump prices, not the rack price a bulk buyer pays at the terminal.
An agreement that reads a regional series can produce a different surcharge from one that reads the national average. Diesel price by region shows how far apart the regional averages can sit.
What to check in a contract
- Which index, which region, and which day’s reading sets each period’s surcharge.
- The base price and the step, written as numbers.
- Whether the surcharge is in cents per mile, cents per gallon or a percent, and what it applies to: loaded miles, round-trip miles or the linehaul charge.
- Whether it is figured before or after any minimum charge.
- Whether it shows as its own line on the invoice or is folded into the rate.
Owner-operators who lease their equipment to an authorized carrier have a federal rule to check as well. Under 49 CFR 376.12(e), the lease must clearly specify which party is responsible for the cost of fuel and fuel taxes, among other items. The regulation does not use the term fuel surcharge; it requires the lease to say who bears the cost of fuel. How to get fuel hauling contracts covers the other terms worth settling in a hauling agreement.
Sources
- EIA Gasoline and Diesel Fuel Update: weekly on-highway diesel prices for the US and by PADD, noted as including all taxes
- 49 CFR 376.12: paragraph (e), items specified in lease, including which party is responsible for the cost of fuel and fuel taxes