Fuel Surcharges History
If you’re an owner operator truck driver, you’ve probably heard the term “fuel surcharge” about a million times.
The fuel surcharge is a rate of compensation paid to the entity responsible for paying for the fuel. Between the carrier and an independent owner operator, this is an added bonus to the driver because they are burdened with purchasing the fuel.
Fuel surcharges didn’t always exist.
The Interstate Commerce Commission, an independent government agency founded in 1887, heavily regulated railroads. By 1935 Congress expanded the ICC’s control over trucking companies. The board tightly controlled transportation routes, loads, and rates to restrict competition.
However, in 1973, America experienced its first energy crisis due to the oil embargo by OAPEC nation members. Gasoline prices skyrocketed overnight across the Western world from an average $3 to $12 a barrel. While the embargo ended the next year, the US again faced an oil shortage in 1979 during the panic of the Iranian Revolution.
During this period, trucking companies failed to compete with the unexpected jump in oil prices. Carriers couldn’t just adjust the rates to their customers because they need to apply to ICC for most changes to their business model. The government couldn’t keep up with the volume of demands.
In a rush to protect the transportation sector, the ICC formulated a rate to offset entities responsible for purchasing fuel, known as a fuel surcharge provision.
Despite this effort, the ICC was gradually stripped of its power and ultimately abolished in 1995. Now the Federal Motor Carrier Safety Administration, a subsidiary of the US Department of Transportation, regulates issues of driver safety and hours of service.
Calculating Fuel Surcharge
Most carriers now charge a flat fuel rate (usually $1.25) per gallon to the customer. If the actual cost of fuel per gallon is higher than that rate, the entity paying for fuel (the drivers if they are owner operator truckers) add a surcharge by subtracting the flat rate from the average fuel costs divided by the average miles per gallon of commercial vehicles.
Basically, diesel fuel surcharge takes into account three factors:
- Flat Price = $1.25
- Average Fuel Costs = Varies as per weekly gasoline and diesel fuel updates according to the US Department of Energy.
- Industry Standard Average MPG = 6.0
As an example, let’s say Critical Supply Solutions uses an owner operator in Texas. We would likely apply the most current Gulf Coast average diesel fuel costs posted by the US Department of Energy. Today (May 25th, 2018), that number is $3.055.
So… we would take 3.055 and minus 1.25, then divide the remainder by 6. The final quotient equals 0.3008.
Mathematically, the equation looks like this:
Thus, an owner operator, because they bear responsibility for providing vehicle fuel would be paid 0.3008 per mile in addition to their normal carrier CPM (some include FSC in either deadhead, line haul, or both). Remember this is based on regional average fuel costs and the industry standard MPG. When you are discussing rates with fleet carriers, calculate based on the most recent values for your region and according to your vehicle mileage.
You can use this general formula to decide what a fair compensation from your carrier for a given load. Keep in mind though, there’s no law that says a trucking company must provide a surcharge to owner operates. The best trucking companies looking for owner operators should clear advertise their intentions and specify how FSC will apply in your contract.
Think of fuel surcharge in the trucking industry as a simple way to account for the variable cost of diesel with some level of predictability. You deserve to know the exact amount a carrier should compensate you for fuel.
If you search around the web, you’ll find dozens of online fuel surcharge calculators to help get quick estimates of what’s a fair range.
You may find owner operator trucking very rewarding with the independence you enjoy, but it does come with a level of education. You want to take full advantage of all owner operator jobs by staying informed and knowing how much you’ll profit.
Critical Supply Solutions adds standard fuel surcharge compensation on both deadhead and line haul miles for all our owner operators. On average, they make between $2500-3500 on weekly settlements. We are accepting new applications now and would love to begin processing you immediately. You can submit your information through our application link or give us a quick call at 561-487-0800.