About Those Pesky Fuel Surcharges...

All of us have felt the recent spike in gasoline prices. Motorists across the country are feeling the pinch, as the national average price of gas has increased 38 cents per gallon since January 1.

Diesel price has also risen in the last few weeks. Why is this important, since most of us use gasoline in our cars? It is important because most of today’s trucks use diesel fuel. And, similar to gas, the national average price of diesel has increased 12.5% since January 1, from $2.64 per gallon, to $2.97 per gallon as of February 22.

The price of diesel fuel is important, as it impacts the price of goods that we buy. As the price of fuel increases, so too does the fuel surcharge. The fuel surcharge is an added fee that transportation providers add to freight invoices to cover the volatility in fuel. Otherwise, they would have to update their standard rates frequently. This way, they can keep their rates steady, and simply apply a factor to account for changes in fuel prices.

I would surmise most people have heard of fuel surcharges, but many probably don’t know how the surcharge is calculated. So let’s unpack that black box, and share how the surcharge comes about.

Every Monday, the government publishes the weekly average prices of gasoline and diesel fuel, by key cities, states, region, and nationwide. Carriers will then update their systems to reflect the new weekly average cost. Nationwide carriers tend to use the national average, while regional carriers tend to use the regional average for their distribution territory.  The new weekly cost is then applied to a fuel surcharge table, which translates into a percentage factor, to be applied to the base rate and added onto the invoice.

Most carriers have very similar surcharges, because the transportation industry is very competitive. However, their surcharge table can be different. For instance, Yellow has a surcharge table with different rates for every penny of increase, whereas XPO’s table increases in nickel increments.

Let’s walk through how this works. If you go to the Department of Energy Information Administration’s website (https://www.eia.gov/petroleum/gasdiesel/), you’ll see the following table:

If you then go to a carrier’s website- we mentioned Yellow before, so let’s use their website, (YRC.com) and search for their fuel surcharge table. (https://admin.yrcw.com/wp-content/uploads/sites/4/2017/06/fuel-surcharge-amount-jan-18-2017b.pdf). All you need to do now is to scroll down to find  the range that would include 2.973- you’ll see it is between 2.970 and 2.979, and you’ll see that this week, Yellow customers will pay an LTL surcharge of 23.5%, and a Truckload surcharge of 47%.