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.