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Point of view shot from inside a gas tank being filled, with overlaid text 'Surcharge Or Overcharge?', highlighting concerns in freight and parcel shipping costs.

Surcharge, or Overcharge?

by LJM Group

Fuel surcharges are a type of built-in insurance, or hedge, that Carriers use to minimize their risk against unexpected fuel costs.It is an extra fee, determined as a percentage of the base rate, charged by transport companies to allow for the fluctuating costs of fuel.

Currently there is no one administrative or regulatory body that controls fuel charges. The addition of a surcharge system began in the 1970s as a response to OPEC fuel cost spikes, as an economic policy that could buffer or safeguard the transportation industry from fuel cost unpredictability. In this environment transporters may utilize generally accepted industry rates to set their own extra charge. They typically utilize three factors for fuel overcharge estimation: the gauge fuel value, the ongoing cost, and fuel costs as a portion of working expenses.

Fuel surcharges are most commonly set relative to a base fuel cost, which may vary by location or country of origin. The base fuel cost is the fuel cost utilized while deciding expense of operation. The base fuel cost for diesel fuel is set at cost per gallon in the US, while in Canada, the cost is per liter. As an alternative, a contract precondition or benchmark can provide the basis for the fuel mileage. Much like the base fuel value, the base fuel mileage is an agreed-upon sum that appraises the miles per gallon the transporter provides.

Determining the best method to manage ongoing fuel value fluctuations that trigger the extra charge is also a key decision point when negotiating fuel overcharges. All parties involved in the shipping contract should decide as early as possible what costs will be utilized, and at what range those costs will be taken, considering variations in local diesel fuel costs as well as more global indicators, such as government-based weekly fuel cost estimates.

In North America, Canada and US government organizations provide the average expense on a weekly basis for diesel fuel costs. Each Monday, Canada’s Public Traffic Administration reconsiders and updates the benchmark Fuel Surcharge (FSC). In the US, the thruway-based Diesel Fuel Costs index is delivered periodically by the Division of Energy. While fuel surcharges are not the only expense determining cargo rates, they are an important component, particularly in an economic environment where fuel costs could change dramatically in a relatively short time.

By collecting and analyzing the most current data, seasoned logistics managers can utilize this data as evidence to lessen the burden on customers. Further, in identifying key market changes, they can provide significant value from emerging data trends, enhancing negotiating power within customer networks.

Overall, this data-driven or “evidence-based” strategy for managing fuel surcharges has proven successful in better estimating shipping contracts, improving transportation scheduling, and decreasing fuel utilization within the transportation cycle.

Reviewing expert data is critical to managing fuel overcharges. Very much like examining line pull costs on cargo solicitations, it is essential to obtain expert review on fuel charges. Guaranteeing that you have a speedy installment rebate is one simple and programmed technique for cost decrease. Routine review of your solicitations is a basic guarantee that you are invoiced accurately, and that the transporter is performing to legally binding levels. In some cases, it is possible that a review of your solicitations could distinguish receipt mistakes of 4% or higher.

The best answer for managing fuel surcharge variation is to secure a viable contract with the ability to streamline and bypass large transportation and diminish fuel utilization, thereby creating the unmistakable benefit of lessening fossil fuel byproducts from the transportation cycle.

There is little that merchants can do about avoiding rising fuel surcharges, since most pricing is based on external factors out of their control. However, there are effective ways to lower shipping costs that can help increase your bottom line and anticipate rising shipping costs, especially in market analysis and negotiation of shipping routes with local carriers. Extended distances and greater complexity of routes inevitably leads to higher fuel surcharges, but the ability to determine and negotiate the most efficient routes can lead to lower costs, and ensure shipments are made as efficiently as possible.

Ultimately, having the best experts and the right data can help merchants mitigate the higher fuel costs associated with more expensive, faster services, and optimizing these services reduces net spending on transportation.

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SOURCES

XPO Fuel Surcharges: https://www.xpo.com/fuel-surcharge-table/

Fuel Surcharge Shippers Perspective: https://www.gep.com/white-papers/fuel-surcharge-shippers-perspective

Diesel Fuel Surcharges: https://www.eia.gov/energyexplained/diesel-fuel/diesel-fuel-surcharges.php

DOE Fuel Surcharge: https://atlas.doe.gov/FuelSurcharge.aspx

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