If you run a trucking company, then you probably know that one of the costs that can impact your bottom line is fuel expenses. With fuel prices changing each day because of market conditions and global events, it can be challenging to predict your expenses accurately. To address this issue, many trucking companies use a fuel surcharge to ensure they can continue to operate profitably when confronted with fuel cost increases. In this blog post, we'll explain what a surcharge is and how to calculate it for your trucking company.
What is a fuel surcharge?
A surcharge is an additional fee that trucking companies charge to customers to offset an increase in the cost of fuel. The cost of fuel can be a major expense for businesses, and because fuel prices can be unpredictable at times, many companies will add a surcharge to their services. The purpose is to ensure that the trucking company is reimbursed for part of the fuel expenses that they incur while transporting goods for customers. It's a way to ensure that customers are neither undercharged nor overcharged for the transportation and delivery services that a company provides.
National fuel surcharges were first introduced in the 1970s during the oil crisis. At that time, fuel prices skyrocketed, and trucking companies struggled to keep up with the costs. To avoid going out of business, trucking companies started to add surcharges to their rates. Today, surcharges are standard practice in the trucking industry.
The amount of a surcharge varies depending on the price of fuel and the distance traveled, among other factors. A DOE fuel surcharge, as of March 2023, is calculated at $.40 per mile. But depending on your vehicle, where you operate and the customers you serve, you might need to calculate your own surcharge to better fit your specific needs.
Calculating fuel surcharges
Calculating surcharge rates might seem difficult at first, but it involves a few simple steps. Keep in mind, this isn’t meant to cover the entire cost of fuel. You will need to know your base fuel price for the cost of operation which is how much you need to charge in order to make a profit. A surcharge will then offset any increase above that price. Here's what you'll need to get started:
- Current Fuel Price: This is the current price of fuel in your area. You can find this information on websites like GasBuddy or the Energy Information Administration (EIA). Or ask your fuel card provider if they post pricing information online through their customer portal.
- Base Fuel Price: This is the price of fuel when you established your base rate. You should keep track of fuel prices regularly to ensure that your base rate accurately reflects current operating costs and market conditions.
- Fuel Efficiency (MPG): This is the average miles per gallon (MPG) of your vehicle. You can calculate this by dividing the total miles traveled by the total gallons of fuel used, if you don't know this number already. Or you can check with your truck's manufacturer for specs on the model you drive.
- Miles Traveled: This is the distance traveled for the customer job. You can calculate this using mapping software from your GPS unit or online tools like Google Maps.
Fuel surcharge calculator
- Surcharge Rate Per Mile = (Current Fuel Price - Base Fuel Price) / MPG
- Surcharge Amount = Surcharge Rate Per Mile x Miles Traveled
Once you have all of these values, you can plug them into the formula to start calculating a surcharge for customers. For example, if the average fuel price for diesel is $4.29, your base fuel price is $3.00, your vehicle averages 6 MPG and the customer route is 500 miles, then here is how the calculation would look:
- ($4.29 - $3.00) / 6 MPG = $0.215 per mile
- $0.215 X 500 miles = $107.50
The surcharge to add to your customer's invoice would be $107.50, based on the starting values we used in this specific example.
Conclusion
A surcharge is an essential tool for trucking companies to offset their fuel expenses and ensure that they are fairly compensated for the cost of fuel when transporting goods for customers. It is important to note that fuel surcharge rates can vary based on a variety of factors, including the region, the type of fuel, vehicle MPG and the industry. It's also important to stay up to date on fuel prices and adjust your base rate and surcharge accordingly. By following the steps outlined in this post, trucking companies can calculate surcharges accurately and maintain healthy profit margins.
