A fuel surcharge is an extra fee that shipping companies (or third parties) charge to cover the fluctuating cost of fuel. It is calculated as a percentage of the base rate and is usually added to a shipper’s freight bill to cover the cost of operations. The fuel surcharge depends on the average fuel price and can be different for each shipper or industry, depending on fuel cost to revenue ratio. It covers additional fuel costs and keeps carriers profitable, even when the cost of fuel rises.
No federal administration regulates a fuel surcharge policy. Each shipper and carrier individually negotiate and set it in contracts. There is a vast space for fraud – there are no legal requirements to control passing collected fuel taxes from a shipper to a person who actually pays for fuel for shipper’s load. Fuel is one of the highest expenses for a carrier, together with drivers’ pay. Using a surcharge supports negotiation on long-term contracts, where base rates remain the same and the fuel surcharge acts as security from short-term fuel price fluctuations.