ask the experts series

fuel surcharge

Fuel can be a costly part of shipping and transportation. Because the market value of fuel fluctuates frequently, shipping companies change their fuel rates to match the market rate. That means the fuel charge you see on your shipping invoice is rarely a fixed fee or flat rate. 

Shipping companies have also started adding fuel surcharges on top of their base rate, which can apply to some shipping services but not others. What many ecommerce companies may not know is that their fuel costs are often negotiable. 

Understanding how your carrier calculates their fuel rates and surcharges, is the first step in knowing if you’re overspending on this part of your overall transportation costs. Here is an overview of fuel charges and surcharges, how they are calculated, and how they affect various shipping services.

What are Fuel Surcharges and How are They Calculated? 

Shipping carriers charge for fuel as a separate cost than their shipping services. But it’s not a single rate, there are many factors that go into the fuel cost you see as a line item on your shipping invoice. 

Here are the main factors that go into the final fuel cost on your invoice, and how it is calculated:  

1. The Cost of Fuel  

Carriers determine a fuel rate based on the average industry prices or the market cost of fuel. This is so that they don’t lose money on shipments when the cost of fuel goes up and they might even profit if the cost of fuel dips. 

Each carrier uses a slightly different method to calculate their base fuel rate. It’s important to understand the differences so you can find the carrier that best matches your needs and not get locked into a contract that will cost more than it should.

  • UPS — fuel rate changes weekly, effective every Monday. UPS takes the average cost of fuel from the two-weeks prior to the Monday the rate goes into effect.  
  • FedEx — fuel rate changes weekly, effective every Monday. FedEx takes the average cost of fuel from the single week prior to the Monday the rate goes into effect. 
  • DHL eCommerce – fuel rate changes monthly, effective starting first of each calendar month. DHL takes the monthly rounded average from the two months prior to their effective date. 
All three major carriers start with the same market price of fuel (from the national U.S. On-Highway average price for a gallon of diesel fuel as published by the U.S. Department of Energy), but because they take their average from a different period of time their base fuel rates can sometimes look quite different.

What can shippers do about fuel surcharges?

Fuel surcharges are, unfortunately, a part of the job and will be one of the more common fees on your invoices for the foreseeable future. However, there are some things shippers can do to help offset the cost of shipping fuel surcharges.  

  • Consolidate shipments. Can you consolidate less-than-truckload shipments into a full truckload? Less bookings mean less fees.
  • Check regional and national partnerships. Each freight carrier brings unique services and specialties. Some local players may have better rates for short distances, while national carriers may have better rates for longer trips.
  • Increase visibility of your costs. Can you see itemized fuel spent on invoices? Shippers can't control these fuel fees, making documentation even more important. If it's not already lined out, talk to your carrier for deeper cost details. This may help when justifying costs to the business.
  • Build fees into the budget. If you identify fuel costs in your invoices over time, it's possible to establish a high-level trend for fuel surcharges. Maybe this won't be an exact amount, but some math gymnastics could help you pad your budget. 
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