Your day is full of moving parts. Documents need to be filed, transportation services need to be arranged and, perhaps most importantly, you’ve got a budget to maintain.
Sometimes, however — particularly in the transportation industry — managing that budget is easier said than done.
Each month, a portion of the dollars you’ve allocated for freight transportation are spent on fuel surcharges — fees covering the cost of the diesel fuel used to haul a load.
But since deciding how to handle these charges is up to you, it should be easy to ensure you’re getting the best possible bang for your buck. . . right?
Actually, this isn’t always the case. You see, there are plenty of ways for shippers to manage their fuel surcharge schedules.
That said, four of these tactics — the four most common — come with a unique set of pros, cons and use cases that probably aren’t aware of.
Selecting the best method for you — a method that will get your freight moved reliably at accurate price points — will take some well-rounded knowledge on this topic.
Here at Anderson Trucking Service (ATS), we’ve been helping companies move their cargo since 1955. Over the years, we’ve seen fuel surcharge scheduling tactics evolve substantially. However, without witnessing this change or understanding the different options available, many shippers end up paying inaccurate prices.
In this article, we’ll explain what fuel surcharges are, why they’re important for trucking companies, what a fuel surcharge schedule is and compare four of the most common methods great shippers use to manage theirs.
Upon completion, you’ll walk away with a far better understanding of the impact fuel surcharges have on your bottom line and how managing your scheduling correctly can help your business going forward.
What is a Fuel Surcharge (FSC)?
Fuel surcharges are fees billed to shippers in addition to the freight rate they receive. Levied, primarily, to account for the diesel fuel a truck driver uses to haul a shipment from A to B, fuel surcharges help trucking companies compensate their drivers for this expense. Fuel surcharges were universally adopted in the early 2000s after per-gallon diesel prices rose beyond 4 dollars, justifying an additional charge to businesses with cargo to move.
Since diesel fuel prices have been known to fluctuate frequently, rising in one region and falling in another, these reimbursement surcharges are crucial to the continued success of national transportation companies and marketplaces.
What is a Fuel Surcharge Schedule?
A fuel surcharge schedule — also called a fuel surcharge matrix — is a list or database of pre-set prices indicating what a shipper is willing to pay, per mile, for the fuel used to transport their products.
These prices — which can be calculated in a number of ways — help shippers and transportation companies ensure that their budgets, capabilities and needs properly align before an agreement is made.
What Are The Various Ways To Manage a Fuel Surcharge Schedule?
As it currently sits, companies with freight to move have a few solid options for executing their surcharge schedules. Each of these options — when implemented correctly — help shippers ensure that their transportation dollars are used well.
The four most common ways companies manage their fuel surcharge schedules are:
- Using a standard fuel schedule.
- Calculating fuel charges as a percentage of the line-haul rate.
- Using a third-party fuel consumption management firm.
- No separate fuel surcharge.
To help you decide which method is right for your situation, let’s break down the pros, cons, and use-cases for each of these.
1. Using a Standard Fuel Schedule
Regular or “standard” fuel surcharge schedules are far and away the most common scheduling practice used by shippers. This method, which has been a close companion to fuel surcharges since its inception in the early 1970s, is widely used today.
And for good reason.
Based on the Department of Energy’s (DOE’s) national fuel price index, standard surcharge schedules are meant to pass the cost of purchasing fuel — at its current national rate — onto the shipper who owns the freight in transport.
For shippers, managing a standard schedule is possible with (relatively) minimal effort.
With this method, shippers simply need to update their list of per-mile fuel payments on a weekly, biweekly or monthly basis, in accordance with changes to the DOE’s national fuel prices.
Typically, these schedules are housed within a spreadsheet or online database which can be quickly sent to prospective transportation providers and carriers.
It should be noted, however, that although standard schedules give shippers relative ease of use, a reliable way to budget for these expenses and require little to no up-front investment to utilize, they’re not the right solution for every business.
Often, managing surcharge payments based on the DOE’s national or regional prices leaves shippers paying prices that don’t reflect the costs incurred by the driver hauling their load. You see, fuel prices fluctuate greatly between locations, regions and/or lanes. As such, generalized fuel prices aren’t as finely accurate as other scheduling methods and may leave a shipper over or underpaying for their fuel.
2. Calculating Fuel Price as a Percentage of the Line-Haul Rate
The second method many shippers use to manage their fuel costs is to calculate these prices as a percentage of the final line-haul rate they’re quoted.
For example, a 500-mile shipment that’s quoted at a rate-per-mile of $3 would fetch a total line-haul price of $1,500 plus fuel. Paying for this fuel as a percentage of linehaul — a percentage that fluctuates based on DOE fuel prices — is an option some shippers choose to utilize.
In this case, let’s say a shipper has scheduled their fuel charge to be 4 percent of the final line-haul rate. Calculated as $1,500 x 1.04, this would leave this company paying $1,560 for their shipment.
Utilizing this tactic gives shippers an advantage on longer-haul shipments which can be priced competitively, allowing percentage-based fuel prices to remain stagnant regardless of price fluctuations from one location to another.
That said, percentage-based pricing on shorter runs (of 350 miles or less) — that don’t require the same amount of fuel usage yet still need to be priced appropriately to compensate drivers for the time spent on a shipment — can leave shippers paying more than necessary.
3. Using a Third-Party Fuel Consumption Management Firm
Reimbursing transportation companies for their fuel costs can also be done using third-party systems for fuel management. Although the rarest method on this list, managing a fuel schedule in this way has become increasingly common in recent years as shippers strive to pay the most accurate price fuel surcharge as possible.
You see, where standard and percentage-based scheduling are calculated using the DOE’s fuel price index and provide blanketed pricing for an area, or region, third-party software systems can be far more granular.
Using fuel recovery and management technologies developed by companies like Breakthrough, Walker SCM and Newstream Enterprises, shippers can hone in on daily fuel prices in the areas through which their freight travels. Using the information collected, businesses with freight to move can ensure that the fuel prices they pay are as accurate as possible.
The price of purchasing and implementing breakthrough systems can be expensive, making this method of fuel scheduling feasible, primarily, for larger businesses that move a high volume of freight every month.
4. No Separate Fuel Surcharge
The fourth way that shippers manage their freight spend — and by extent, the surcharges they pay — is to compensate carriers through an “all-in” linehaul rate.
Using this method, shippers avoid the complexities that accompany managing fuel surcharge schedules and instead opt for a single comprehensive number.
Structuring a freight payment in this way increases the total linehaul rate and removes fuel surcharge from the transaction.
While this saves these companies the time they’d spend managing and updating their surcharges and is effective for one-off shipments, sometimes this tactic dissuades trucking companies from providing contracted, long-term capacity.
You see, as fuel prices fluctuate — seemingly overnight in some instances — locking themselves into an ongoing all-in commitment is risky for carriers. Without a dynamic fuel surcharge, that adjusts to meet current fuel costs, carriers could find themselves taking a loss on these contracted commitments.
In turn, this can make servicing your freight less attractive to trucking companies.
For this reason, in the pursuit of reliable ongoing capacity, you may want to steer clear of handling your surcharges in this way.
Which Fuel Surcharge Schedule Fits Your Business Best?
Now that you have a high-level understanding of each of these fuel surcharge scheduling options, let’s compare them each side by side so that you can decide which will fit your business’s needs.
|Standard Fuel Schedule||Percentage-Based Fuel Schedule||Third-Party Management|
|Ease-Of-Use||⚪ ⚪||⚪ ⚪ ⚪||⚪|
|Pricing Accuracy Long Hauls||⚪ ⚪||⚪ ⚪||⚪ ⚪ ⚪|
|Pricing Accuracy Short Hauls||⚪ ⚪||⚪||⚪ ⚪ ⚪|
|Fit For Large Companies||⚪ ⚪||⚪ ⚪||⚪ ⚪ ⚪|
|Fit For Small Companies||⚪ ⚪ ⚪||⚪ ⚪ ⚪||⚪|
|Investment Required||⚪||⚪||⚪ ⚪ ⚪|
|Frequency of Utilization||⚪ ⚪ ⚪||⚪||⚪|
How Does A Fuel Surcharge Actually Impact Your Freight Rates?
Although the way you decide to handle the pricing and payment of your fuel charges can impact your bottom line, your management tactic doesn’t really matter that much to trucking companies.
More than anything else, trucking companies have a couple of stagnant realities to face:1. Truck drivers are essential workers that must be paid competitively.
Outside of competing with other trucking companies for the same pool of drivers, today’s carriers also have to ensure that their drivers are paid wages that mirror or exceed that of other industries. Construction jobs, for example, are always looking to add CDL drivers to their workforce and give drivers the option to spend more time at home with their families and friends.2. Each of their assets must bring in a set amount of revenue per day.
Similar to a rental company, asset carriers boast a unique cost and revenue structure where each of their assets is dedicated to an external party for a set period of time. When their truck, trailer and driver are under the employ of one company, it can’t be used by another. For this reason, it’s imperative that trucking companies are appropriately paid for the use of their assets.
The fact is, these two realities can’t be avoided. In order to stay in business, trucking companies need to generate a set amount of dollars per day with each of their trucks.
Additionally, your fuel surcharge is meant to reimburse drivers for the dollars they spend on fuel while under your load. As such, trucking companies fully compensate their drivers no matter how much they receive in the form of a surcharge.
In most cases should a surcharge fail to meet the price of the diesel purchased by a truck driver, this difference is added to the line-haul price a shipper is billed.
Get the Most From Your Shipping Dollars
Here at ATS, we know that your freight rates matter to your continued success. We also know that understanding and predicting your pricing can be difficult — even with the most well-managed fuel schedule.
Questions about the factors influencing your rates and what you can do to make the most of your budget should never go unanswered. But in the transportation industry, they so often are.
These insights will help you take your transportation dollars further, come through on your customer commitments and exit this year with a healthier balance sheet than you came in with.
Check out our Pricing Page, for information on what you should expect to pay for your next shipment. And, if you still have unanswered questions, don’t hesitate to reach out. We have a transportation professional standing by to assist you in any way you need.