Diesel and fuel surcharges

Fuel surcharges are based on what the company charges based on information from the EIA. When Fuel goes up so does your revenue. Managing expenses is also a huge factor in profitablity. A .02 cents saved per mile on 100K is 2000.00 dollars. Watch the fuel taxes. If possible look for saving by purchasing fuel in states with lower taxes on Diesel. Optimial Fuel purchase can also keep more cash in your wallet. Another concern is that when leasing on to a Carrier, you must be allowed to audit the "Actual Invoice" that is billed to the customer. A company can skim the cream off the top without your knowlege. Your ability to manage controllable cost is reflected at the end of the month when your CPA prepares a Monthly Profit and Loss Statement which should include a Actual Vs. Budgeted comparision based on historical data. Keeping reciepts showing Labor Cost Parts and taxes for Fuel, repairs, fluids, parts and supplies can help fine tune operating cost and creating a Budget. You should seek advise from your CPA regarding what items are deductable expenses and which items are just expenses. When I owned trucks inthe 80's we would depreciate the value on our purchases (spread out the tax-deductions over a period of time). There are lots of tax advantages to owning a Small Business.

 

The only problem with that approach is if you religously fill up in low tax states, you will owe more in IFTA taxes at the end of each quarter. You will have to make up the difference for the miles you travel in high tax states. The savings is nothing more than an interest free loan for 3 months.

 

Getting back to the question "how do I calculate a FSC?". You'll either base it on an additional cents per mile formula or a percentage of the linehaul rate. Most all carriers have a starting point (base) that their FSC is calculated from. This base is the price of fuel. I've seen anywhere from $1.15 to $1.30 used. If you elect to use a higher base your FSC program may look more appealing to a prospective client. If your fleet averages above 6mpg you should be alright starting with the higher base. Now, do you charge an increased cents per mile or percentage? I believe the percentage is an easier way to go for most situations, I mean it does really in the end come down to "cents per mile" as that is how we typically charge for our services. You'll find most LTL carriera always charge a percentage of the invoice. Truckload carriers can be either one. I just think it'll be easier for your customers to estimate their freight costs with a percentage program.
So with that said, you can either copy someone else's FSC sheet or start your own. The easiest way is for every $.05 increase in the price of fuel from your base, you increase your FSC by .50% or $.01 per mile. So if we had a base of $1.20 meaning if fuel was $1.20 per gallon (never again!) we wouldn't charge anything for a FSC. Now if let's say fuel was going for $1.30 a gallon and for giggles we were charging $1.50 per mile as a base linehaul rate. Therefore because the fuel went up two nickels or 10 cents we would either charge 2 cents more per mile or increase our base linehaul rate by 1% (2 x .50%) to cover the increased cost of fuel. So the rate would be $1.515 under the percentage and $1.52 per mile under the cent increase deal. Now just using the 5 cent increase from the base deal, take the current price of fuel, either use the EIA or your region, and subtract your base fuel cost.

Current fuel price = $3.20/gal (where I live)
Base FSC price = $1.20/gal
What should todays FSC be?

$3.20 - $1.20 = $2.00 (making the math easy)

Now the $2.00 is the additional cost of fuel that you are paying above the base rate so we will divide .05 into that two dollars.

$2.00/.05 cents = 40 increments of increase

Which either adds .40 cents per mile to your rate or 20% to the linehaul rate....so if our base rate is $1.50 per mile our adjusted rate with a FSC would be:
$1.90 under cents program
$1.80 under percentage

You can of course tweak your percentages to equal the cents program but keep in mind as long as you average at 6mpg and above your additional fuel costs will be taken care of and you'll probably be more competative in your rate program under the percentage scale.

Hope this was easy enough to understand and was helpful, and yes, there ain't a whole lot going on today hence the long post.

 

The most accurate way to calculate fuel surcharges is to incorporate your vehicle's fuel efficiency into the formula. Here is an example:

Per Mile Fuel Surcharge = (Current Fuel Price - Base Fuel Cost)/MPG
Total Fuel Surcharge = Per Mile Fuel Surcharge x Estimated Mileage

Fuel Efficiency = 5.5 mpg
Current Fuel Price = $4.30 per gallon
Base Fuel Cost = $2.50 per gallon
Total Miles = 1800

Per Mile Fuel Surcharge = ($4.30 - $2.50)/5.5 mpg = $.33 cents per mile
*The per mile FSC may be rounded, though use the actual number when calculating the Total Fuel Surcharge, ie $.327272727
Total Fuel Surcharge = $.327272727 x 1800 mi = $589.09 total fuel surcharge

An alternate method is to take the increase in fuel cost from a given point (say you know already fuel is $1.00 per gallon higher than it was this time last year) and divide it by the vehicle's fuel efficiency. So in this case $1.00/5.5 mpg = $.18 cents per mile. Based on 1800 miles you would need $327.27 more than you got last year on the same load.

If you want to calculate the total per mile fuel cost for a trip you would just take the Current Fuel Price and divide it by your MPG.
$4.30/5.5 mpg = $.78 per mile; multiply by total miles of 1800 and you get $1407.27 total fuel cost for this trip.

Finally, for iPhone, iPod, and iPad users I created an app called PocketFuelCal that does this for you quickly and efficiently. Please check it out on the App Store

 

Base Fuel Cost = $2.50 per gallon

If you use a base of that make sure your rates are adjusted up accordingly. $0.33 isn't a normal FSC at fuel retail of $4.30/gal. The majority of the industry uses around $1.25 for the base, albeit that probably needs to change cause I don't believe we'll ever see $1.25 fuel again.

 

Many I have seen the past few years use 2.00 per gal, and 6 mpg as the averages.

 

The IFTA tax paid each quarter is EXACTLY the same whether you pay it at the pump or at the end of the quarter. You are ALWAYS money ahead to fuel where the price PRE-TAX is the lowest. That does not always mean in the low tax states.