What is a fuel Surcharge?
As an owner operator you hear about fuel surcharges often, but do you really know what they are and how they affect you? A fuel surcharge is a flat rate that allows the cost of fuel to be incorporated into shipping rates in a fair manner and allows shippers to have a fixed fuel cost they can count. A fuel surcharge accounts for fluctuating fuel prices and the average cost of transporting goods. Charging the exact cost for fuel on each shipment would be complicated because of frequent price changes.
The most commonly used formula for calculating a fuel surcharge is based on three variables: a base fuel price, base fuel mileage, and the source and interval of the current fuel price. When a surcharge is calculated accurately, it not only protects the carrier but the shipper as well.
Fuel Surcharge at Crete Carrier
Here at Crete Carrier, we calculate a specific fuel surcharge payment with our owner operators. Every truck receives a fuel surcharge payment once the price exceeds $1.25 per gallon. We base the amount of the surcharge payment on the average miles per gallon; specific to the type of truck you are driving. Crete and Shaffer trucks average 6.8 miles per gallon. We also factor in the national average fuel surcharge at Crete Carrier; the fuel price needs to fluctuate 6.8 cents per gallon to result in a change in the surcharge payment to drivers.
The final cost of fuel for owner operators is calculated based on discounts and the fuel surcharge payment calculation. The following example is for a driver who hits the 6.8 miles per gallon average. If you do not average the same, your numbers will vary from what is listed below.
Average retail price of fuel per gallon across the nation: $3.007
Crete Discount: 40 cents (average)
3.007 – .40 = 2.607
Crete Carrier’s fuel price after discount: $2.607
This week’s U.S. Department of Energy fuel surcharge: 27 cents (.27) per mile
Driver’s average MPG: 6.8
.27 x 6.8 = $1.836
Final fuel price: $1.836
Crete Carrier’s Fuel Price – Final Fuel Price = Driver’s actual cost per gallon
2.607 – 1.836 = $0.771
At Crete Carrier, we keep fuel costs for owner operators at or below one dollar per gallon. To ensure our owner operators receive the best deal, we provide them with a fuel solutions offer, a ‘road map’ for the cheapest fuel across the country. This tells our drivers where the cheapest fuel is along the routes they are running. By following the fuel solutions map, drivers will receive an average of 40 cent discounts. Our owner operators are not required to follow the fuel solutions, they will only receive the Crete Carrier discounted price is if they fill up at the listed stations.
Where do drivers come in?
Fuel represents the number one expense for a carrier. Depending on how a truck is driven, the typical average is between six and eight miles per gallon, or even better with new technology in recent years. Since the surcharge paid by shippers is a negotiated, flat rate, Crete Carrier does better when we keep our real fuel costs down. Drivers can reduce real costs and improve efficiency by driving in a fuel efficient way. To have good fuel economy, a driver needs to account for rolling resistance, air resistance, and gravity. What does this mean? By making slower starts and stops and limiting idle time, you will increase your fuel efficiency. Another benefit to getting better mileage is that you will reduce your refueling stops which in-turn boosts your productivity on the road. For other ways to boost your productivity, read our last blog: (link: Boosting Productivity on the road).
Teamwork helps everyone
By negotiating reasonable and realistic fuel surcharges with customers we are positioned to cover costs or make a profit. Fair and honest fuel surcharges keep trucks running profitably for the owners and helps drivers succeed with as few worries as possible. It’s a winning combination. As we work together to better our company each day, we also strive to inform our drivers about costs and processes that are relevant to everyone’s success.