How Are Fuel Surcharges Calculated in Freight Shipping?

1. What Is a Freight Fuel Surcharge?
2. Why Do Fuel Surcharges Exist in the First Place?
3. How Are Shipping Costs Calculated
4. Base rate
5. Fuel surcharges
6. Additional fuel surcharges
7. What's Going on with Fuel Surcharge Rates Right Now?
8. What Can Shippers Do about Fuel Surcharges?
9. Summary

Fuel surcharges are included in the price of each shipment of products when moving them from one place to another. These fees change based on the origin and destination of the items.

In this article, we will look at how freight carriers' surcharges are calculated and why they exist. We will also explore the most common fuel surcharges used in the industry.

What Is a Freight Fuel Surcharge?

Fuel surcharges are calculated based on the average price per gallon for diesel during a specific period. They are employed to offset the cost of international cargo shipping partially.

It is challenging to compare rates across different carriers because there is no consistency in calculating these fees.

For example, one carrier might charge $0.20 per pound while another charges $1.00 per pound.

These fees can vary drastically depending upon where you're shipping, the type of shipment, and many other factors.

Why Do Fuel Surcharges Exist in the First Place?

In 1973, OPEC imposed an economic boycott on the United States, forcing the nation into a period of high inflation.

In response to the energy shortage, President Richard Nixon signed Executive Order 11490, establishing the Federal Energy Office (FEO).

The goal of the FEO was to reduce the cost of diesel fuel and gasoline. To do this, the FEO worked with the Bureau of Labor Statistics (BLS) to develop a methodology for calculating the average retail price of diesel fuel.

Fuel surcharges were initially implemented to help offset rising costs associated with refineries. However, over time, fuel surcharges were gradually phased out due to declining oil prices.

Currently, fuel surcharges are still calculated based on the average price per barrel of crude oil. However, the BLS no longer collects information about the cost of crude oil. Instead, it relies on the EIA to provide the necessary data.

How Are Shipping Costs Calculated

There are many different ways to calculate the cost of shipping a package. A common method is to divide the total cost of shipping into three parts: a base rate, a fuel surcharge, and a delivery surcharge.

1) Base rate

The base rate is what it costs to ship a package. You can find this information online, either from the carrier itself or from a third-party site. Each carrier calculates its base rate differently. These fees vary depending on whether you ship via air, ground, or ocean.

Many factors affect how much money you spend on shipping, including weather conditions, the type of shipment, and economic fluctuations.

For instance, during the summer, when the economy is booming, there tends to be less competition among carriers. As a result, the cost of shipping increases.

To avoid paying too much for the delivery, make sure you compare like for like. Always look up the specific rates for each carrier before purchasing anything.

When you're looking to save on shipping, you'll want to shop around. However, most people don't realize that you can often find lower rates by comparing prices.

2) Fuel surcharges

Fuel surcharges are added to the base prices of shipping. The surcharge amount varies according to the type of shipment. A fuel surcharge is often charged per pound of cargo shipped.

The surcharge amount increases as the cost of fuel rises and decrease as the cost of fuel falls. The output after calculating the fuel surcharge is always added to the base rate.

Some carriers will offer discounts if customers pay the fuel prices upfront. In some cases, this discount is applied to the entire shipment, while others apply it to the portion of the shipment that uses fuel.

3) Additional fuel surcharges

Additional surcharges apply to many shipping services and are often part of the base rate.

Delivery surcharges are sometimes added to cover the additional expenses incurred by the shipper because the customer chose to use a particular carrier. You might see something like $5.50 per pound added to the total cost of shipping.

These charges are typically listed separately from the base rate. They do not include taxes or fees.

What's Going on with Fuel Surcharge Rates Right Now?

Fuel costs have been rising since July 2018, according to AAA. In fact, the current fuel price is $1.10 per gallon, more expensive than it was one year ago.

This spike is caused by geopolitical issues in Eastern Europe, where supply shortages are causing prices to skyrocket.

AAA predicts that prices will keep climbing until the conflict in eastern Europe ends, which could take months or even years.

It should be noted that fuel surcharge rates will be determined by the base fuel price.

What Can Shippers Do about Fuel Surcharges?

Fuel surcharges are inevitable. They come into play when you ship goods.

There are three types of fuel surcharges: general cargo, ocean freight, and air freight.

1. General cargo surcharges apply to most carriers.
2. Ocean freight surcharges apply to ships carrying containers.
3. Air freight surcharges apply to planes flying domestically and internationally.

All three kinds of surcharges increase shipping rates based on the distance travelled, and weight carried.

Consolidating shipments is one way to lower your overall fuel surcharge. For example, if you send multiple packages together, it might be cheaper to consolidate them into a single shipment.

You can also combine shipments to reduce the number of trips required or pack heavier items into fewer boxes to save on the cost of shipping.

Another thing you can do to lower your fuel surcharge is to make sure you display the cost of each item clearly.

Some shippers don't include the total cost of the package because they assume customers know how much it costs to ship something. However, many customers don't realize the actual cost until they receive the bill.

Make sure you list the total price for every item shipped. This includes the base rate and additional fees like insurance, customs clearance, etc.

You can also try to negotiate with your carrier to lower your fuel surcharges. Many shippers find that they can negotiate discounts on fuel surcharges by offering to pay cash upfront. So if you're willing to pay in full upfront, you'll likely avoid paying the extra charges later.

Finally, you can ask your carrier to waive your fuel surcharge altogether. Your carrier may offer this option if you meet a specific criteria. For example, if your shipment is small enough to fit into a truck trailer, your carrier may waive the surcharge entirely.

Summary

Fuel surcharges are calculated based on the size of the package (or container) being shipped, current fuel prices, transport method, distance, and a few other factors.

They can mount up. But don't worry—there are ways around this! For example, if you ship multiple items together, you may qualify for volume discounts. And if you ship frequently enough, you might save considerably.

Either way, it pays to shop smart when freight shipping.

At A-1 Auto Transport, we have years of experience transporting at affordable rates. We offer both open and enclosed transport options depending on your preference.

No matter which option you select, we guarantee the safe arrival of your vehicle.

If you'd like more information about fuel surcharges for your shipment, you can get your free shipping estimate here.

We'll be happy to help you find the best option for your needs!