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Fuel Surcharges

June 4th, 2008

This article is a reprint of my column in Truckers Connection and ran originally in the June 06 issue. The column is aimed at Owner Operators and if you haven't see it before pick up a free copy of Truckers Connection at any truck stop and check it out.

 Owning The Wheel
 John Ewing

We’ve talked before about Fuel Surcharges, but as fuel costs again spiral upward this continues to be a hot topic and one worth another visit. Many of you still do not understand fuel surcharges and if you’re not currently getting a fuel surcharge your days as a truck owner are probably limited. With the cost of fuel so unstable it is nearly impossible to calculate your costs of operation so you can project what you need to charge to keep your truck rolling and make a decent living. Whether you are a leased operator or an independent you are going to have to get a fuel surcharge in order to stay profitable.

If you know what your bottom line is, then there is a simple way to calculate what your fuel surcharge needs to be. If you don’t know what your bottom line is, get your Profit & Loss statement for last year and visit http://www.truckershelper.com/operationscost.php Just enter your costs from last year and the form will calculate your bottom line for you.  Once you have your bottom line you’ll be able to calculate your base rate. This is the amount you must charge per mile in order to pay all your expenses and make a reasonable profit.

We’ll assume at this point that you know what you’re bottom line is and that you know what your base rate is. It seems that many companies are using $1.15 as a base rate for fuel costs so the first step will be to compare your base rate for fuel expenses to this number. Take your total fuel costs for last year (or the year you used to create your base rate) and divide it by the total number of gallons you purchased. That will give you your base rate for the cost of fuel.  If that cost is near the $1.15 mark use it, if it’s considerably higher then you may want to examine your base rate. Remember that shippers are watching what others are charging as a surcharge and if yours is considerably higher than the national average, even if your overall costs are competitive shippers may complain or refuse to pay the surcharge.  If your base cost/gallon is more than the $1.15 then use your base rate for the next calculation.

Next, you need to know what the average cost for fuel is. You can find this on the Department of Energy’s website at http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp  This site will give you the average cost of fuel in the USA broken down by area. You will use the numbers for the area you run in primarily for each shipper. If you run cross country, use the national average. For example if you have a customer in New England where the average cost of fuel is currently $2.769 and another in the Lower Atlantic where the average cost of fuel is $2.629, and you run primarily local loads for these customers use the rate for each customers area to calculate their fuel surcharge. If you run the east coast for each shipper, then use the overall East Coast number for both customers.

In calculating your base rate you will also need to calculate your MPG and again will want to take into consideration what the averages are, though you may or may not want to use those averages. Just like $1.15 is the average for the base rate, 5mpg is the average used by many carriers to calculate the surcharge. You may be able to give yourself more of a competitive edge by using your actual MPG to calculate your surcharge. To do the calculation take the average cost of fuel from the DOE web site and subtract your base cost/gallon from it. Now take the answer and divide it by your overall MPG figure and if the answer is not an even number round it up to the next whole number.  Here’s an example:
Weekly Average Cost of Fuel = $2.629
Your Base Fuel Cost = $1.20
Your Overall MPG = 6.5
Your surcharge would be: (2.629-1.20)/6.5 which equals .129 so your fuel surcharge would be $0.13 (13 cents) per mile. Regardless of how you’re doing your billing your fuel surcharge needs to be calculated per mile to start with. You can then use this base to calculate the surcharge based on weight or as a flat rate if you want to bill it that way instead.

In today’s marketplace there are still owner/operators on their way to bankruptcy who will haul freight at a loss, but if you’re going to succeed you must remain profitable. Whether you run under your own authority or are leased to a company you need to be getting a fuel surcharge. Use the methods and formula above to figure out how much you should be getting.

If you have one or more regular shippers who you haul for on a regular basis, or if you are leased on to a small company, be sure to point out that while they may find someone to haul for them for less today, over the long haul no one can continue to provide them with reliable service without remaining profitable and no one can remain profitable without a fuel surcharge which adjusts the rates charged to the every changing costs of fuel.