A fuel surcharge is an additional fee trucking companies charge customers to help offset changing diesel fuel prices. For independent contractors and owner-operators who cover their own fuel costs, fuel surcharges can play an important role in determining whether a load is profitable.
Key Takeaways
- Fuel surcharges and fuel-adjustment programs can help offset changing diesel fuel costs
- Fuel surcharge amounts and calculation methods can vary by shipper, carrier, and transportation agreement
- A common method calculates the surcharge per mile using a base fuel price, current fuel price, and the truck's average miles per gallon
- Company drivers typically don't need to worry about fuel surcharges because their employer covers fuel costs
- Independent contractors and owner-operators should consider both fuel-related compensation and overall load pay when evaluating a load
It's a weird time for fuel right now. With most of the world's supply under a tightened grip, prices keep rising, which isn't great news for independent contractors and owner-operators.
When diesel costs climb, every mile becomes more expensive. While there are steps you can take to help lower expenses, like improving fuel efficiency and taking advantage of fuel discount programs, many drivers still face the same question:
How do you make sure the loads you accept actually cover your fuel costs?
That's where fuel surcharges and fuel-adjustment programs come in.
Fuel surcharges can help carriers manage changing fuel costs, but they aren't regulated. Shippers aren't required to pay them, and when they do, the calculation method depends on the agreement between the parties. That means surcharge amounts can vary widely. It's this inconsistency that makes fuel surcharges feel confusing, especially when you're trying to decide which loads are worth hauling and which ones may cut too deeply into your margins.
At Anderson Trucking Service (ATS), we want drivers to have the knowledge to make informed business choices. This article should hopefully clear things up and help you make smarter load selection decisions to protect your bottom line. We'll go over:
- What fuel surcharges are
- How fuel surcharges are calculated
- What the EIA diesel price data is
- How different shippers and carriers handle fuel-related compensation
- How to evaluate loads based on fuel surcharge structure
By the end, you'll have a better understanding of what to look for when comparing loads and compensation programs. It's that good of an article.
What Is a Fuel Surcharge in Trucking?
A fuel surcharge is an additional fee that trucking companies charge customers to help offset fluctuating diesel fuel prices. It allows carriers and customers to share the financial impact of rising or falling fuel prices without having to constantly renegotiate freight rates.
Fuel surcharges essentially act like a buffer, allowing carriers to adjust transportation costs in step with current fuel market conditions.
By adjusting costs in response to rising or falling fuel prices, fuel surcharges can help trucking companies recover higher fuel expenses while keeping freight services financially sustainable. It's not necessarily about going into the black as much as it is about avoiding going into the red.
And it's not perfect, but it helps.
Do Company Drivers Need to Worry About Fuel Surcharges?
Company drivers typically don't need to worry about fuel surcharges because their employer covers fuel costs.
But for independent contractors and owner-operators, fuel-related compensation can play a major role in overall profitability. Since these drivers cover their own fuel costs, keeping a close eye on the fuel surcharge, fuel-adjustment program, and total load pay is important when deciding which loads to haul.
What Is the EIA Diesel Price Index?
Many transportation fuel surcharge programs reference weekly U.S. diesel price data published by the U.S. Energy Information Administration (EIA), which is part of the U.S. Department of Energy (DOE).
The EIA publishes national and regional average retail diesel prices. A carrier or shipper may use one of those published prices as an input in a fuel surcharge or fuel-adjustment formula.
You'll sometimes hear people refer to this information as the “DOE fuel index” or “DOE diesel price,” but EIA diesel price data is the more precise term.
It's also important to understand what the EIA does not do. The EIA publishes diesel price data, but it does not calculate, assess, or regulate fuel surcharges. The actual surcharge formula is determined by the shipper, carrier, or transportation agreement.
How Are Fuel Surcharges Calculated?
Fuel surcharge calculations vary by shipper, carrier and transportation agreement, but the per-mile formula is one common method. It typically establishes a base fuel price and a point at which a surcharge begins. Once that threshold is reached, the surcharge can be calculated using the difference between the base price and the current diesel price, along with the truck's average fuel economy.
Fuel Surcharge Calculation Example
- Determine the base fuel price. For example, $2.50 per gallon
- Record the average fuel price for the calculation period. For example, $3.00 per gallon
- Calculate the price difference: $3.00 - $2.50 = $0.50
- Divide that difference by the truck's average miles per gallon: $0.50 ÷ 6 mpg = $0.083 per mile
- Using this example formula, the calculated fuel surcharge would be approximately $0.083 per mile
Fuel price difference ÷ average miles per gallon = fuel surcharge per mile
That example is meant to show how one type of formula can work. Actual formulas, base prices, mileage assumptions, and qualifying miles can differ by agreement.
How Do Shippers Pay Fuel Surcharges?
Shippers may pay carriers a fuel surcharge as part of the transportation rate. How an independent contractor is compensated for fuel depends on the carrier's pay program and contractor agreement.
Some carriers pass through customer-paid fuel surcharges, while others use separate fuel-adjustment formulas or incorporate fuel compensation into the overall rate.
Here are a few common ways fuel surcharges may be structured on the customer side:
Standard Fuel Schedule
This is a common fuel surcharge structure. A shipper may pay a per-mile fuel surcharge based on published diesel fuel price data, with the amount changing as fuel prices rise or fall.
Many transportation fuel surcharge programs reference weekly U.S. diesel price data published by the U.S. Energy Information Administration (EIA). Depending on the agreement, a national or regional EIA diesel price may be used as one input in the surcharge formula.
Line Haul Percentage Rate Schedule
Instead of paying a flat per-mile amount, some shippers calculate the fuel surcharge as a percentage of the line-haul rate. The percentage may change based on an agreed-upon fuel price benchmark, such as EIA diesel price data.
For example, let's say a shipper pays a carrier $2,000 to move freight from Point A to Point B. If the agreed fuel surcharge is 4% of the line haul, the shipper would pay an additional $80 in fuel surcharges, bringing the total transportation cost to $2,080 for the load.
Third-Party Fuel Consumption Management
Instead of relying on a national diesel price benchmark alone, some shippers use third-party fuel management providers to calculate fuel costs.
With this type of method, fuel calculations may account for regional fuel prices along a shipment's route.
This can allow the calculation to better reflect differences in fuel prices from one part of the country to another, such as higher prices in California compared with some Midwest markets.
Fuel Included in the Linehaul Rate
Some customers do not pay a separately identified fuel surcharge and instead negotiate an all-in transportation rate. In those situations, how the carrier compensates an independent contractor for fuel depends on the carrier's pay structure and contractor agreement.
When evaluating this type of load, look at the total compensation rather than searching for a separate fuel surcharge line item.
How Do Carriers Compensate Independent Contractors for Fuel?
Fuel surcharges and fuel-adjustment programs can help independent contractors manage changing diesel costs, but the way that compensation reaches an independent contractor isn't always the same.
A customer may pay a separate fuel surcharge to the carrier, or the carrier may use its own fuel-adjustment formula. How you're compensated depends on the carrier's program and your contractor agreement.
Here are a couple of examples:
100% Fuel Surcharge Pass-Through
Under this type of program, a carrier passes through 100% of an applicable customer-paid fuel surcharge to the independent contractor.
Keep in mind that the details matter. Before comparing programs, find out how the surcharge is calculated, which loads qualify, and whether the payment applies to loaded miles, empty miles, or both.
National Average Fuel Formula
Another approach uses published national diesel price data rather than simply passing through a customer-paid surcharge.
For example, a carrier may pay an independent contractor a fuel adjustment per loaded mile that increases or decreases based on changes in a published diesel price benchmark, such as EIA national average diesel price data.
Understanding how these programs work — and what your contractor agreement actually provides — can help you compare compensation programs and make more informed business decisions.
How Do Fuel Surcharges Impact Load Selection for Independent Contractors?
Fuel-related compensation can be an important part of making smart load decisions and protecting your profitability. When reviewing a load offer, start by estimating how many loaded miles you'll drive and how much fuel you'll likely use. Then compare your expected fuel cost with the fuel surcharge, fuel adjustment, and total compensation associated with the load.
That comparison can help you understand how much of your expected fuel expense the compensation may offset.
But it's not just distance that matters. Other factors that can influence fuel efficiency include:
- The weight of the load
- Your truck's fuel economy
- Terrain and road conditions
- Expected empty miles
- Regional fuel prices along the route
Alright, alright; I know what you're thinking: this is all great, but can you just...tell me how to make more money?
Yes. Yes I can.
It's all about taking a strategic approach to selecting loads. Look at the complete compensation package, including loads that:
- Offer a strong fuel surcharge or fuel adjustment, or
- Provide a higher overall freight rate that helps offset increased fuel costs
By evaluating both fuel-related compensation and overall pay, you can make more informed load choices and better understand the potential profitability of the freight you haul.
How Can Independent Contractors Save Money on Fuel?
Yep; it's a weird time for fuel right now, so if you're looking for ways to reduce your fuel costs, you're not alone. For independent contractors and owner-operators, managing fuel expenses isn't just about the surcharge attached to a load. It's about understanding the total compensation and what you'll actually spend to move that freight.
When comparing carriers, ask how their fuel surcharge or fuel-adjustment program works for independent contractors. Understanding how much is paid to you, how the amount is calculated and whether it applies to loaded or empty miles can help you compare compensation programs more accurately.
You should also look for companies that share their fuel discounts with you. Access to discounted fuel programs can seriously reduce your overall operating expenses.
If you're still looking for more ways to save a few bucks, these tips will help you increase your fuel efficiency.
Good luck, and stay safe out there!
Fuel Surcharge FAQs
What Is a Fuel Surcharge in Trucking?
A fuel surcharge is an additional fee trucking companies may charge customers to help offset fluctuating diesel fuel prices. It can help carriers and customers account for changing fuel costs without constantly renegotiating the underlying freight rate.
What Is the EIA Diesel Price Index?
The U.S. Energy Information Administration (EIA), part of the U.S. Department of Energy (DOE), publishes national and regional average retail diesel prices each week. Many transportation companies use this data as one input in fuel surcharge or fuel-adjustment formulas. The EIA publishes the price data but does not set or regulate fuel surcharges.
How Is a Fuel Surcharge Calculated?
Fuel surcharge calculations vary by shipper, carrier, and transportation agreement. A common method establishes a base fuel price, calculates the difference between that price and a current diesel price benchmark, and divides that difference by the truck's average miles per gallon to determine a per-mile surcharge.
Do Company Truck Drivers Need to Worry About Fuel Surcharges?
Company drivers typically don't need to worry about fuel surcharges because their employer covers their fuel costs. Fuel-related compensation is more directly relevant to independent contractors, lease operators, and owner-operators who are responsible for their own fuel expenses.
Why Are Fuel Surcharges Important to Owner-Operators?
Fuel surcharges and fuel-adjustment programs can play an important role in an owner-operator's overall profitability because owner-operators cover their own fuel costs. Comparing expected fuel expenses with fuel-related compensation and total load pay can help determine whether a load makes financial sense.
What Should Independent Contractors Consider When Evaluating Fuel Compensation?
Independent contractors should consider how the fuel surcharge or fuel adjustment is calculated, how much is paid to them, which loads qualify, and whether the payment applies to loaded or empty miles. They should also consider expected fuel usage, total freight compensation, truck fuel economy, load weight, terrain, and road conditions.
Explore Independent Contractor Opportunities at ATS: Contact us if you'd like to learn how ATS approaches fuel discounts, compensation, and contractor support.