Today’s diesel prices make it critical for owner-operators to demand a fair fuel surcharge.  A fuel surcharge is a fee that is commonly added to the freight charges that allows you to be reimbursed for excessive fuel costs incurred while hauling freight from one point to another. Many owner-operators, leased and independent, can make money off diesel price spikes from getting a fair fuel surcharge. If you aren’t making money off your surcharge and using your paycheck to cover the additional cost of fuel, what are you doing wrong?

 

Knowing your truck’s fuel economy is the key to calculate how well a fuel surcharge compensates you for rising prices. The surcharge increases incrementally with diesel prices, either on cent per mile basis or a percentage of what the customer pays the carrier for the load.  Carriers structure their surcharge scale by assuming certain fuel efficiency, such as 6 miles per gallon. If you are not getting at least 6 miles per gallon here are a few ways to be more fuel efficient: reduce your speed, reduce idling time, have proper tire inflation and alignment, and slower your starts and stops…just to name few. These habits not only improve fuel economy, they also save maintenance costs and increase productivity by cutting the number of fuel stops.
 
Let’s look at a scenario for each way a surcharge can be given, per-mile or percentage, and determine how you can come out ahead either way.

  • Surcharge figured as per-mile. Suppose a surcharge is designed to cover increases above $1.25, and fuel now costs $4 per gallon. Ideally, you’ll receive a surcharge covering that $2.75 spread. If your truck gets 6 miles per gallon, divide $2.75 by 6mpg.  That equals 45.8 cents per mile. A surcharge at that level allows you to break even. Now assume you get 7mpg. Dividing $2.75 by 7 means a surcharge of only 39.2 cents per mile is needed to break even. If you’re driving for a fleet that has a surcharge based on its company trucks’ 6-mpg average, you come out 6.6 cents ahead. At 10,000 miles a month, that’s an extra $660.  This is why owner-operators with great fuel economy and good fuel surcharges do not worry when the diesel price increases: it means more money in their pockets.
  • Surcharge figured as percentage: An owner-operator offered a surcharge that is a percentage of gross revenue does a similar calculation to per-mile.  Take the same situation – you get 6 miles per gallon and diesel is $4, so you need a surcharge of 45.8cpm to cover your costs. Assume you are offered a 1000-mile haul for $1100. Start with your 45.8cpm target for a surcharge and multiply by miles. Your $458 surcharge would be as a percentage of the line haul. Divide $458 by $1100, to get 41.6%. That’s the level you need to cover your extra fuel costs. 

ATBS, a business service provider who does taxes, bookkeeping, and accounting for owner-operators, has surveyed dozens of carriers weekly about there surcharge programs. The results revealed a common formula: carriers pay a penny per mile for every 6 cents that the average diesel price is above $1.25. If you get that amount, and your truck gets 6 mpg, you should break even.
 
Getting a fair surcharge is simple: get good fuel mileage and the surcharge will be enough to compensate you for increasing prices.

Comments (11)

Dan White

After graduating from the University of Tennessee with a degree in Transportation, Dan spent 28 years in the traffic organization at Western Electric, AT&T and Lucent Technologies. He also spent one year as a Dispatch and Warehouse Manager for North American Van Lines. Dan has worked for ATBS since 2004 and helps drivers who are struggling in their business and need in-depth assistance to get back on their feet. He uses his previous experience and knowledge of business management and the trucking industry to assist drivers.

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I actually average over 7 mpg. I have always figured my prices at 5 mpg when bidding on loads. A 500 mile load in my head equals 100 gallons!

December 31, 2012 3:21:02 AM

Thanks for the formulas. They make it much easier to calculate the savings. As an O/O who gets the surcharge based on the per- mile basis, I am always way ahead of the curve due to the fact I get better than 8 mpg.

Much to the chagrin of many other O/O's at my company (who get 5 mpg and drive 70-75 mph), I look forward to increases in the cost of fuel. I have been known to smile (all the way to the bank) when this happens.

November 12, 2012 14:52:46 PM

In MY case, FSC mean nothing, as i am getting paid %tage 'by the load'.
however, saving money on fuel expenses IS my top daily business priority.
the fleet average is a whooping 26,000$ a year more then what this one O/O is spending on fuel.
free truck payments !.

November 03, 2012 13:51:13 PM

I thought about that as well. But for now, the better fuel economy you get, the more money in you pocket.----Great article

October 17, 2012 16:06:50 PM

As trucks are evolving to get better fuel economy one wonders if the way surcharges are calculated will change.

September 28, 2012 4:37:56 AM

This info is great, but I really still don't undestand the fuel surcharge . So if your truck gets more than 6 mpg than you are making money off the fuel surcharge, if you get less then you are losing.

September 23, 2012 11:59:20 AM

I think I can finally say that I understand fuel surcharge! Thanks Dan for shedding light on this complicated, important topic.

September 13, 2012 18:43:29 PM

Being an O/O sales specialist, I find this information very interesting. It can really help me to feel more comfortable chiming in when they are discussing Surcharges. I will make sure to share this in my office. Thanks Dan

September 13, 2012 10:39:46 AM

Contolling fuel cost should be one of the top priorities for an Owner Operator. This is great information. Thanks Dan

September 12, 2012 19:43:12 PM

Fuel surcharge is just one part of being profitable. It is just as important to look at the whole weeks income and expenses to see if you have turned a profit. Some loads on the spot market don't even have a fuel surcharge as the rate was figured using the current fuel price and the market forces of supply and demand.

September 12, 2012 10:05:29 AM

As a O/O that is paid on percentage I look at the total load pay and miles to be driven. The fuel costs can change on a daily basis and we have the ability to adjust our rates quickly. Fuel is one of our highest costs and something we think about every time we turn the key in truck

September 11, 2012 11:56:19 AM