You may have heard some rules of thumb, or seen calculators for fuel surcharge on the internet we have one here, but they don’t really tell you what’s going on behind the scenes.
Knowing how to calculate a fuel surcharge will help you whether you book your own loads and set your own rates or whether you are leased on to a company that does it for you. This way you will know whether the surcharge your company pays you will offset your increased fuel costs.
In order to calculate your fuel surcharge, for your business, you need to know a couple numbers specfic to your business: the actual cost per mile and the fuel mileage for your truck.
The most important number you can know for your business is your actual cost per mile. This cost should include everything you spend on running your business: truck payments, insurance, health insurance, fuel, maintenance, and everything else. You also want to include hidden costs like future repairs and maintenance as well as equipment replacement. We have a calculator to help you with this, too.
You need to know your costs of business so when you are setting a rate or picking a load to haul from a broker, you don’t haul a load that loses money. Otherwise, you are paying to haul the load, which is just bad business.
When you are calculating your costs per mile, you will see that fuel is by far the largest cost to your business. But fuel cost is special for another reason, too. It changes every day.
In order to deal with this rapid change with when it comes time to set rates on a load, trucking companies have settled on adding a fuel surcharge. They basically pick a fuel cost to serve as a basis for their contracts.
For example (using nice numbers), if the truck or fleet averages 5mpg and fuel costs $2.50 per gallon at the time of setting the rate, then the actual cost per mile will be calculated with fuel costs at $0.50 per mile.
When fuel gets too high, they add a fuel surcharge to cover the increased fuel costs.
Since you know the basis fuel cost per gallon that was used to set your original rate, you can calculate the fuel surcharge.
If the basis fuel cost was $2.00 and the current fuel cost is $3.00, you know you need to charge an extra $1 for each gallon of fuel you buy while hauling the load.
Since your load rates are per mile, you need to calculate the fuel surcharge per mile, too. This is where knowing your fuel mileage comes in.
Knowing the fuel mileage, then the fuel surcharge is simply:
$1.00 per gallon divided by your truck’s miles per gallon.
If your truck gets 5 mpg, then the fuel surcharge would be:
$1.00 / 5 mpg = $0.20 per gallon or 20 cents per gallon.
What if you are leased to a company?
If you are leased to a company, the calculation is even easier, so long as you know your actual costs per mile.
All you have to do is compare the load rate + fuel surcharge to your actual costs per mile. If the total of the rate and fuel surcharge is high enough above your costs to make it worth your while, you are good to go.
If the fuel surcharge isn’t high enough and you know it after looking at your costs, you can try to negotiate a higher fuel surcharge (or rate) with your broker. You’ll have a much stronger case if you are comparing it to actual numbers in your business instead of just asking for more money.
So that’s it. It isn’t difficult on its own, so long as you know your actual costs per mile. If you don’t that’s the most important thing you can figure out for your business.
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More resources for trucking business owners:
- What’s the difference between HVUT, Form 2290, and IFTA?
- "How long do I have to keep these?": FMCSA record retention for owner-operators and small fleet owners
- Top tax filing tips for owner-operators
- Tips for owner-operators with tax problems
- How are fuel surcharges calculated?
- Simple rules for maintaining long-term profitability in your trucking business
- Starting out with an owner-operator trucking business
- Owner-operator expenses: Fixed costs vs variable costs
- Understanding owner-operator expenses and costs
- Gaining half an MPG can put more money in your pocket than adding $90,000 in revenue
- Cutting fuel costs and improving fuel efficiency for Owner Operators
- Top truck-buying tips for owner-operators
- New versus used truck pros and cons table
- Buying a truck: Should you get a new or used rig?
- Preventative maintenance strategies to avoid major repair costs
- IFTA fuel-buying strategies: Where is the best place to buy fuel?
- Calculating your cost per mile
- Owner Operator Expenses - Fixed Costs vs Variable Costs
- How do I calculate IFTA?
- How does IFTA work?
- How did IFTA start?
- What exactly is IFTA?
- Tracking miles for IFTA
- Fitness for the road
- Acronym cheatsheet for the trucking industry