Admin
July 5th, 2005, 13:36
How to implement a fuel surcharge
With the price of diesel fuel spiraling upward to a record high, if you have not incorporated a fuel surcharge into your operation, you must do it now. Small business owner-operators and motor carriers do not need to get government approval or file an application with DOT to implement a fuel surcharge. Here's how to do it.
1. Notify your customers with a faxed memo. You can use this one for a guideline.
Dear xxxx,
As you are no doubt aware, fuel prices have spiraled upward over the past several months to their highest level in history. John Q. Trucking Company has acted in good faith to resist seeking price relief as long as we possibly could. Due to the critical nature of the current situation, we can no longer continue to absorb the increased cost.
Therefore, effective February 2003, we must implement a temporary fuel surcharge on all shipments. The fuel surcharge will remain independent from our base rates and will be shown as a separate entry on our freight bill. The fuel surcharge amount will be charged on a mileage basis, reflecting the extra cost of the fuel used in the specific trip.
Our pricing is based on the U.S. National Average Diesel Fuel Index. We will review this data and our actual costs on a weekly basis. The figure used for cost per gallon is also region specific, established by the average cost of the fuel per gallon, the date and the load's origination point.
We deeply appreciate your understanding and partnership with us in helping to share the dilemma of these fuel cost increases. It's working together that will keep our nation strong during this time of crisis. We hope that by sharing this burden together, we can keep the goods and services that power the American economy moving.
Respectfully,
John Q. Trucker
John Q Trucking Company
2. Calculate your own fuel surcharge. It’s easy.
Base your fuel surcharge on the average retail price of diesel fuel for the region where you pick up a load on the day you load. This average retail price information is collected by the federal government's Energy Information Administration and updated every Monday unless affected by a federal holiday. Weeks that are affected by holidays are shown on the schedule at:
http://tonto.eia.doe.gov/oog/info/gdu/schedule.html In those weeks, the survey is done on Tuesday, but the prices collected are still that Monday's pump prices.
You can get the information by calling (202) 586-6966 or you can go to this Web site:
http://tonto.eia.doe.gov/oog/info/wohdp/diesel_detail_report.asp
Here's an example for the week of 3/22/05:
Weekly Retail On-Highway Diesel Prices ($ per gallon, including all taxes)
3/22/05 This will be your fuel surcharge per mile you should get this week*
New England
(CT, ME, MA, NH, RI VT) 2.355 0.251
Central Atlantic
(DE, MD, NJ, NY, PA & DC) 2.358 0.2516
Lower Atlantic
(FL, GA, NC, SC, VA, WV) 2.186 0.2172
Midwest
(IL, IN, IA, KS, KY, MI, MN, MO,
NE, ND, SD, OH, OK, TN, WI)
2.196 0.2192
Gulf Coast
(AL, AR, LA, MS, NM, TX) 2.18 0.216
Rocky Mtn.
(CO, ID, MT, UT, WY) 2.313 0.2426
West Coast
(AL, AZ, CA, HI, NV, OR, WA) 2.471 0.2742
* These fuel surcharges are based on the average price of fuel in each region for the week indicated. Assumes your truck gets an average 5 miles per gallon, and that a fuel surcharge per gallon is the difference between the average fuel price in your region and $1.10 (standard industry benchmark price).
How do you calculate the per mile surcharge?
Most companies begin imposing a fuel surcharge when the price of fuel goes above $1.10 per gallon. They assume that their basic freight rates cover their costs when fuel is $1.10 and lower. When the price goes higher than $1.10 per gallon they impose a fuel surcharge to recoup those higher costs.
Here's a formula you can use to calculate your increased fuel costs and the amount of a fuel surcharge you should charge and collect
First, gather these numbers: For Example
The total miles you'll drive 1,000 miles
Your truck's average miles per gallon 5 mpg
The average price of fuel for the day and the region where you pick up the load (check the EIA or OOIDA Web site) $1.669 per gallon
The average benchmark fuel price used by most motor carriers. $1.10 per gallon
Now do the math
1) Figure your increased fuel costs per gallon used
Take the average price of fuel for the day and region where you pick up a load and subtract the benchmark fuel price: $1.669 - $1.10 = $0.569 the increased cost of fuel per gallon.
2) Figure the number of gallons you used:
A 1,000-mile trip divided by 5 miles per gallon = 200 gallons used
3) Multiply the total fuel surcharge
Gallons used, 200, multiplied by the fuel surcharge per gallon, $0.569, equals your increased fuel costs and the total fuel surcharge you should charge for the trip - $113.80
NOTE: Again, small business owner-operators and motor carriers do not need to get government approval or file an application with DOT to implement a fuel surcharge.
With the price of diesel fuel spiraling upward to a record high, if you have not incorporated a fuel surcharge into your operation, you must do it now. Small business owner-operators and motor carriers do not need to get government approval or file an application with DOT to implement a fuel surcharge. Here's how to do it.
1. Notify your customers with a faxed memo. You can use this one for a guideline.
Dear xxxx,
As you are no doubt aware, fuel prices have spiraled upward over the past several months to their highest level in history. John Q. Trucking Company has acted in good faith to resist seeking price relief as long as we possibly could. Due to the critical nature of the current situation, we can no longer continue to absorb the increased cost.
Therefore, effective February 2003, we must implement a temporary fuel surcharge on all shipments. The fuel surcharge will remain independent from our base rates and will be shown as a separate entry on our freight bill. The fuel surcharge amount will be charged on a mileage basis, reflecting the extra cost of the fuel used in the specific trip.
Our pricing is based on the U.S. National Average Diesel Fuel Index. We will review this data and our actual costs on a weekly basis. The figure used for cost per gallon is also region specific, established by the average cost of the fuel per gallon, the date and the load's origination point.
We deeply appreciate your understanding and partnership with us in helping to share the dilemma of these fuel cost increases. It's working together that will keep our nation strong during this time of crisis. We hope that by sharing this burden together, we can keep the goods and services that power the American economy moving.
Respectfully,
John Q. Trucker
John Q Trucking Company
2. Calculate your own fuel surcharge. It’s easy.
Base your fuel surcharge on the average retail price of diesel fuel for the region where you pick up a load on the day you load. This average retail price information is collected by the federal government's Energy Information Administration and updated every Monday unless affected by a federal holiday. Weeks that are affected by holidays are shown on the schedule at:
http://tonto.eia.doe.gov/oog/info/gdu/schedule.html In those weeks, the survey is done on Tuesday, but the prices collected are still that Monday's pump prices.
You can get the information by calling (202) 586-6966 or you can go to this Web site:
http://tonto.eia.doe.gov/oog/info/wohdp/diesel_detail_report.asp
Here's an example for the week of 3/22/05:
Weekly Retail On-Highway Diesel Prices ($ per gallon, including all taxes)
3/22/05 This will be your fuel surcharge per mile you should get this week*
New England
(CT, ME, MA, NH, RI VT) 2.355 0.251
Central Atlantic
(DE, MD, NJ, NY, PA & DC) 2.358 0.2516
Lower Atlantic
(FL, GA, NC, SC, VA, WV) 2.186 0.2172
Midwest
(IL, IN, IA, KS, KY, MI, MN, MO,
NE, ND, SD, OH, OK, TN, WI)
2.196 0.2192
Gulf Coast
(AL, AR, LA, MS, NM, TX) 2.18 0.216
Rocky Mtn.
(CO, ID, MT, UT, WY) 2.313 0.2426
West Coast
(AL, AZ, CA, HI, NV, OR, WA) 2.471 0.2742
* These fuel surcharges are based on the average price of fuel in each region for the week indicated. Assumes your truck gets an average 5 miles per gallon, and that a fuel surcharge per gallon is the difference between the average fuel price in your region and $1.10 (standard industry benchmark price).
How do you calculate the per mile surcharge?
Most companies begin imposing a fuel surcharge when the price of fuel goes above $1.10 per gallon. They assume that their basic freight rates cover their costs when fuel is $1.10 and lower. When the price goes higher than $1.10 per gallon they impose a fuel surcharge to recoup those higher costs.
Here's a formula you can use to calculate your increased fuel costs and the amount of a fuel surcharge you should charge and collect
First, gather these numbers: For Example
The total miles you'll drive 1,000 miles
Your truck's average miles per gallon 5 mpg
The average price of fuel for the day and the region where you pick up the load (check the EIA or OOIDA Web site) $1.669 per gallon
The average benchmark fuel price used by most motor carriers. $1.10 per gallon
Now do the math
1) Figure your increased fuel costs per gallon used
Take the average price of fuel for the day and region where you pick up a load and subtract the benchmark fuel price: $1.669 - $1.10 = $0.569 the increased cost of fuel per gallon.
2) Figure the number of gallons you used:
A 1,000-mile trip divided by 5 miles per gallon = 200 gallons used
3) Multiply the total fuel surcharge
Gallons used, 200, multiplied by the fuel surcharge per gallon, $0.569, equals your increased fuel costs and the total fuel surcharge you should charge for the trip - $113.80
NOTE: Again, small business owner-operators and motor carriers do not need to get government approval or file an application with DOT to implement a fuel surcharge.