QuestionQUESTION: Hi Don, my husband started our trucking co about 8 years ago. He did EVERYTHING! Dispatch, maintenance, office and drove on the drivers days off. I worked as an admin assist. for the county. He died last yr along with our 6 yr old son while doing just that..driving for a driver to have the day off for his wives birthday Oct 12, 2007. I have been left taking care of the co. and our remaining 4 children. I have had to learn everything from scratch, hands on. I NEED HELP!! I have 3 trucks 3 reefers. We haul mostly produce within a 500 mile radius from Tulare CA (San Juaquin Valley)..so LA to Sac. A company has asked me for my rates on local loads..anywhere from 25 miles to 300 miles..20 to 40 loads/wk. I heard i should charge a fuel surcharge?? Might sound crazy but I have no idea how to do this and I need to know what I should say/put in a contract..can you please direct me to someone who can help me with these issues..greatly appreciated...Misha
ANSWER: Hi Misha..
Thank you for the question. First of all, I'd like to say that I admire your courage and greatly respect you for continuing the business under such stressful circumstances.
The fuel surcharge should be based on the fuel prices for the region in which you currently haul as reported by the Department of Energy each week. Secondly you need to know what the current fuel costs are so you can calculate the correct fuel surcharge.
The Department Of Energy's web report on the WEEKLY FUEL COSTS broken down by region. You'll use the region that you run in primarily, or if you run cross country, use an average for the country.
http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp
I’ll post some of the information below and some links that may help. The formulas are examples so be careful to fill in your own accurate numbers for your specific area. I’ve used OOIDA’s calculator in the past. It can be found at the link below.
http://www.ooida.com/Swimming_sharks/MAR%20fuel%20surcharge%20kit.htm
The fuel synergistiks fuel surcharge chart may be found at http://www.synergistiks.com/oofsa.html
You may find reading the information found at http://www.logisticsmgmt.com/article/CA6389626.html to be helpful.
http://www.aitaonline.com/Info/General/Fuel%20Surcharges.html
EXAMPLE.....
You'll need to calculate the fuel surcharge. There are several different ways to do this and there are tables that do the math for you, but here's a simply formula that you can use to make the calculation yourself. Take the current cost of fuel, which you got in step 2 above and subtract $1.15* from it. Now divide the result by your average MPG. If it comes out even, that's your fuel surcharge, it it has a left over round it up to the next highest round number. Here's a couple examples:
Fuel Cost is $2.65 including all taxes and the average MPG is 5mpg -
2.65 - 1.15 = 1.50
1.50/5 = .30
so your fuel surcharge would be $0.30 (30 cents)/mile.
For a fuel cost of $2.81 including all taxes and the average MPG is 6mpg -
2.81 - 1.15 = 1.66
1.66/6 = .276
so your fuel surcharge would be $0.28 (28 cents)/mile
*The $1.15 figure is the number that seems to be being used by a number of large carriers and others in calculating the base rate for calculating fuel surcharges. I suggest that you calculate your bottom line and then use your actual cost from that calculation as your base rate. If it's considerably less than the $1.15 standard then you may need to adjust your base rate - remember shippers are getting quotes from other companies and if you're surcharge is considerably higher than your competitors you may end up losing a contract even though your overall costs is close to the same.
After reading the information found at the links below and reviewing the example, if you have specific questions or I can assist you in any way, please submit a follow up question. I hope this helps a little.
Thanks / Don
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QUESTION: Thank you for your quick response and all your valuable help. Let me be sure I got it. Our avg rate in CA right now is 2.53 so subtract 1.15 = 1.38/ 7mpg=.20/ mile.When the fuel prices increase how and when do I increase the rate? And Im still confused at how you came up with the 1.15. Another question..Should I charge a flat rate plus fuel charge for all loads..for example 275.oo for ea load be it 25 miles or 150 miles or charge per pallet and fuel or each load per mile plus fuel?? Im sorry this seems so basic but I just picked up where he left off and we already had several brokers giving us loads and we basically take whatever they give us. Now Im the one who has to provide the rates and I really want to work with this company. ALSO if we are selected what should I put in the contract? I know this is not an easy answer kind of question but if you could again give me a few links with examples that would be great...THANK YOU!!!!!!
AnswerHi Misha....
I know it can be confusing, but calculating surcharge is actually a pretty simple process. Implementing it may be a little more complex. There is no Federal regulation of fuel surcharges, and EIA does not calculate fuel surcharges or review fuel surcharge formulas. As a result, each company seems to have some variation with respect to how they establish their fuel surcharge. That's understandable since very few companies operate exactly the same or have the same business plan. So you're going to need to tailor your approach for your specific situation. The $1.15 to $1.20 is more or less what the industry has determined to be a baseline. Somewhere along the line, that number was selected because that 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 as your fuel mileage calculator, your BASELINE is $0.24 per mile.
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. Doing that for every individual shipment would likely be very challenging. My experience has been weekly adjustment is about as often as you can practically do it.
Another simple way to calculate it with the same result is to just subtract the baseline cost ($1.15 to $1.20 per gallon) from the national average price (DOE Weekly Fuel Prices), 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.
How you actually implement your fuel surcharge is entirely up to you and that is why so many different approaches are used. Basically, you're trying to maintain a consistent profit margin for the miles your trucks run and the fuel surcharge compensates for fuel price fluctuations. As a general rule of thumb for contract purposes, you may want to consider adjusting your surcharge when there is a $.01 per gallon change in fuel prices.
I really can't answer your question (275.oo for ea load be it 25 miles or 150 miles or charge per pallet and fuel or each load per mile plus fuel). However, let me attempt to explain..... My first inclination is that you can't charge the same for a load going 25 miles and one going 150 miles. If you're running a full truck load on each shipment, then the problem is a little easier to address. If you're running LTL, it becomes more complex and charging a percentage of the surcharge based on per pallet might be appropriate. In some cases where a company has a history of operating costs and revenue, the surcharge can be based on a set percentage of the freight charge per piece or package. The CPM to operate the truck will be essentially the same whether it is full or an LTL. The truck has a capacity for X amount of freight. Ideally, each shipment is a full load, but that's is rarely the case. If it was, the implementation would be quite simple. You would just add the appropriate fuel surcharge based on trip mileage only. Since it isn't likely to be an full load every time, you must apportion the surcharge over the actual load. The danger here is that if it is a minimal load, the surcharge may over burden the shipper and you may not even be competitive. By that I mean, a shipper is not going to pay the full trip's surcharge if they're only shipping a few pallets. Remember shippers are getting quotes from other companies and if your surcharge is considerably higher than your competitors you may end up losing a contract even though your overall cost is close to the same.
If I may, I'd suggest a few links for some of the major companies that will explain how they assess and collect the surcharge. Find one that has an operation similar to yours in terms of the type of freight, LTL/TL, parcel, etc. Model your fuel surcharge generally on theirs and modify it for any special considerations and differences your operation may have.
Again, I hope this helps a little and I sincerely wish I could rattle off an exact plan for you. I can't because I do not know the details of your operation.
Thanks again and feel free to ask other questions.
....Don
http://stopillegaltrucking.com/
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http://www.con-way.com/en/tools_pricing/freight/fuel_surcharge/
http://www.ups.com/content/ch/en/resources/find/cost/fuel_surcharge.html
http://freerealtime.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1
http://www.nplnsr.com/fuel_surcharge.php
http://www.allbusiness.com/energy-utilities/energy-utility-sector-performance-oi
http://www.allbusiness.com/energy-utilities/oil-gas-industry-oil-processing/6355
http://www.allbusiness.com/energy-utilities/oil-gas-industry-oil-processing/6355
http://www.cmfdelivery.com/surcharge.htm
