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> Fuel Surcharges, Do you know how to setup a fuel surcharge
John Ewing
post Apr 16 2006, 12:37 PM
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With the cost of fuel bouncing up and down every day it's become nearly impossible to know what your bottom line is. Here's a few tips to help you setup and start collecting a fuel surcharge and how to calculate it.

First you need to let your customers know that you are going to begin charging a fuel surcharge. Here's a sample letter that you could use.

CUSTOMER NAME,

YOUR COMPANY NAME is dedicated to providing you with reliable service in the most cost effective manner possible. With this in mind we have established our base rates based on our costs of operation. Recently the cost of fuel has risen dramatically and unpredictably making it impossible for us to reliably predict our costs of operation. In order to remain competitive we have decided to institute a fuel surcharge which will be added to our current base rate.

The fuel surcharge will be based on the fuel prices for the region in which we currently haul for you as reported by the Department of Energy each week. We know that the rising cost of fuel is impacting your business as well as ours and pledge to assist you in controlling costs any way we can.

Thank you for your understanding and support in these unstable times.

Sincerely,

YOUR NAME


Second you need to know what the current fuel costs are so you can calculate the correct fuel surcharge.
Here's the Department Of Energy's web report on the WEEKLY FUEL COSTS broken down by region. You'll use the region that you run in primarily, or if you run cross country, use an average for the country.

Finally, you need to calculate the fuel surcharge. There are several different ways to do this and there are tables that do the math for you, but here's a simply formula that you can use to make the calculation yourself. Take the curent cost of fuel, which you got in step 2 above and subtract $1.15* from it. Now divide the result by your average MPG. If it comes out even, that's your fuel surcharge, it it has a left over round it up to the next highest round number. Here's a couple examples:

Fuel Cost is $2.65 including all taxes and the average MPG is 5mpg -
2.65 - 1.15 = 1.50
1.50/5 = .30
so your fuel surcharge would be $0.30 (30 cents)/mile.

For a fuel cost of $2.81 including all taxes and the average MPG is 6mpg -
2.81 - 1.15 = 1.66
1.66/6 = .276
so your fuel surcharge would be $0.28 (28 cents)/mile

*The $1.15 figure is the number that seems to be being used by a number of large carriers and others in calculating the base rate for calculating fuel surcharges. I suggest that you calculate your bottom line and then use your actual cost from that calculation as your base rate. If it's considerably less than the $1.15 standard then you may need to adjust your base rate - remember shippers are getting quotes from other companies and if you're surcharge is considerably higher than your competitors you may end up losing a contract even though your overall costs is close to the same.


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John Ewing
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