The real QUESTION is --- HOW MANY DRIVERS EVEN KNOW WHAT A FUEL SURCHARGE IS AND HOW IT WORKS?
To get surcharge from shippers, four things have to take place. First, surcharge must be calculated accurately by the carrier / broker. Next it must be explained and agreed to by the shipper. Third, it must be properly billed to the shipper. And finally the shipper should pay it. There can be problems with each step due to a variety of reasons. I would have to write a book to go into all that.
As an operator, you need to know how to assess surcharge so that you can do whatever else you need to do to offset higher fuel prices. Calculating surcharge is actually a pretty simple process.
CALCULATING SURCHARGE:
We first take the average pump price (i.e. national prices) when the load was hauled and compare it to the baseline from which surcharge is calculated. The baseline that many in the industry use is around $1.15 to $1.20 per gallon,(deisel & gas) depending on the company, region, etc. Note: This price per gallon also happens to coincide with the base target price set for crude oil by OPEC.
To calculate it you divide the pump price by your fuel mileage in miles per gallon (MPG) to come up with a cost per mile (CPM). If we use a baseline fuel cost of $1.20 per gallon and you are using 5 MPG (diesel), 10 MPG (gas) as your fuel mileage calculator, your BASELINE is $0.24 per mile,for diesel, and $0.12 per mile for gas.
You then take the fuel cost per gallon average when the load was hauled and do the same calculation. Surcharge is the difference between this CPM and the baseline CPM.
Another simple way to calculate it with the same result is to just subtract the baseline cost ($1.20 per gallon) from the national average price, then divide it by the fuel mileage in miles per gallon and get the cost per mile (CPM). You will come up with some numbers that will show something similar to the following table.
YOUR COST PER MILE VERSUS PUMP PRICE MINUS BASELINE CPM
- $1.25 per gallon fuel at 5 MPG is $0.25 CPM = $0.01 CPM surcharge
- $1.25 per gallon fuel at 10 MPG is $0.125 CPM = $0.01 CPM surcharge
- $1.30 per gallon fuel at 5 MPG is $0.26 CPM = $0.02 CPM surcharge
- $1.25 per gallon fuel at 10 MPG is $0.13 CPM = $0.01 CPM surcharge
- $1.35 per gallon fuel at 5 MPG is $0.27 CPM = $0.03 CPM surcharge
- $1.25 per gallon fuel at 10 MPG is $0.135 CPM = $0.01 CPM surcharge
- $1.40 per gallon fuel at 5 MPG is $0.28 CPM = $0.04 CPM surcharge
- $1.25 per gallon fuel at 10 MPG is $0.14 CPM = $0.01 CPM surcharge
- $1.45 per gallon fuel at 5 MPG is $0.29 CPM = $0.05 CPM surcharge
- $1.25 per gallon fuel at 10 MPG is $0.145 CPM = $0.01 CPM surcharge
- $1.50 per gallon fuel at 5 MPG is $0.30 CPM = $0.06 CPM surcharge
- $1.25 per gallon fuel at 10 MPG is $0.15 CPM = $0.01 CPM surcharge
- $1.60 per gallon fuel at 5 MPG is $0.32 CPM = $0.08 CPM surcharge
- $1.25 per gallon fuel at 10 MPG is $0.16 CPM = $0.01 CPM surcharge
- And so on.
A GOOD RULE OF THUMB - "$0.05 PER GALLON IS $0.01 PER MILE.DIESEL"
A GOOD RULE OF THUMB - "$0.10 PER GALLON IS $0.01 PER MILE.GAS"
Some more attentive shippers are using 6 MPG and even 7 MPG in their calculation, on diesel. For 6 MPG, this sets the BASELINE at $0.20 per mile ($1.20 per gallon divided by 6 MPG) and it saves the shipper a penny or so at higher fuel prices (i.e. $1.50 per gallon fuel divided by 6 MPG is $0.25 CPM or a surcharge of $0.05 per mile - $0.01 less). You may end up somewhere in between.
This then gets billed to the shipper and you get passed through what is paid. The person or company that paid for the fuel is the party to receive the surcharge.
In general, you will receive less than that when you cost it against total miles, as deadhead is not usually paid unless it is negotiated into the rates. Also most calculate it using national average prices, which vary by region, location, etc.
REMEMBER ONE THING!!!!! SOME SHIPPERS DO NOT PAY IT.