Anyone that has been driving in recent months cannot deny seeing the climbing gas prices at the gas station. It seems that with every passing day, the total cost per gallon of fuel continues to increase. Due to the ongoing war in Russia and Ukraine, the rippling effect of fuel costs has been felt around the world. Especially for businesses that manage a substantial amount of cross-country shipments, they’ve likely encountered the pesky problem of fuel surcharges.
But what are fuel surcharges exactly? An even more pressing question is how these fuel surcharges might affect your business’s bottom line long-term. In this article, ShipCalm explores fuel surcharges, how those charges are calculated, and how these changes in pricing might impact your profits. With ShipCalm’s helpful guidance, your business can properly anticipate these fluctuations, and reduce the impact of these surcharges shortly. In this article we will cover:
What Is A Fuel Surcharge?
To put it simply, a fuel surcharge is an additional fee added to the current contracted rate of oil when the cost of fuel exceeds a certain level. Basically: with limited supply comes additional value, and it can dramatically influence fuel charges. The war in Ukraine is still in full force, leading to astronomical oil prices felt all over the world. These increased oil prices have tremendously impacted shipping costs across all shipping couriers, and many merchants that frequently ship their goods have experienced profit losses as an effect.
Major carriers, like UPS, FedEx, USPS, and DHL, have applied substantial fuel surcharges to their shipping fees. The jump in pricing is felt across the board, UPS fuel surcharges on the week of March 14th had increased by an average of 3.1% for Ground, Domestic Air, International Air Export, and International Air Import. UPS isn’t alone, FedEx and USPS are seeing the same increases. Even more concerning, fuel surcharges are not the only concern for merchants that frequently ship internationally (more on that later!)
Fuel prices and the environmental factors that influence these charges are an always-evolving predicament. Prices might drop one day only to increase more than ever the next. This is why it’s important to understand these fuel surcharges to properly anticipate their effects.
How Are Fuel Surcharges Calculated
Now that we understand what fuel surcharges are, let’s dive into how these pesky charges are calculated. Ultimately, each shipping carrier will have a different formula for calculating their fuel surcharges. That said, many of these carriers follow the same general guidelines. Three major variables influence how fuel surcharges are calculated:
- Fuel Base Price: How much the fuel costs at the time of booking.
- Truck Fuel Economy: This considers the miles per gallon for fuel consumption, varying based on truck types.
- Fuel Price Changes: Simply put, this is the updated diesel costs at the time of shipment.
The calculation for identifying surcharge prices is not regulated, but many carriers follow the same formula. Some carriers will instead use a percentage-based or ratio-based system. But for those that use a calculation based on the factors above, it goes as follows:
Original fuel price – Updated fuel price = Difference in fuel cost
Difference in fuel cost / Miles per gallon = Cost per mile
Cost per mile x Distance traveled = Fuel Surcharge
UPS Fuel Surcharges
UPS works with an index-based surcharge which is adjusted week-by week. The basis for the fee is the National US average on-highway diesel fuel price. If the fuel surcharge falls outside the window of their published ranges, UPS updates the tables accordingly.
FedEx Fuel Surcharges
FedEx’s fuel surcharges percentage is also updated weekly, and based on the weekly published US Gulf Coast spot price for a gallon of fuel. FedEx also introduced a “war surcharge” applied to international and freight shipments to combat supply chain disruptions caused by the Ukrainian war.
USPS Fuel Surcharges
Lucky for those that deal primarily with residential shipments, the USPS does not impose fuel surcharges based on fuel price increases for residential or Saturday delivery.
DHL Fuel Surcharge Calculations
DHL operates under a percentage-based system for their fuel surcharges because they primarily deal with international shipments. Changes in fuel prices necessitate a variable fuel surcharge which is removed in line with fuel prices.
How to Reduce the Impact of Fuel Surcharges in Your Logistics Program
There is little that merchants can do about rising fuel surcharges since most of the pricing is based on external factors out of their control. But there are many ways to lower shipping costs that can help increase your bottom line and anticipate these rising shipping costs. Let’s’ explore a few of the most suggested tips for reducing the impact of fuel surcharges in your shipping logistics program.
- Consolidate shipments when possible: Avoid paying double the price for shipments heading to the same location by consolidating shipments whenever possible.
- Ship during the off-season: By taking advantage of off-season shipping prices, you can lower your losses from astronomical fuel surcharges during peak season.
- Negotiate shipping routes with local carriers: The longer and more detailed the journey, the higher the fuel surcharges will likely be. Discuss the most optimized route with your shipping carrier to ensure shipments are made as efficiently as possible.
- Partner with a 3PL like ShipCalm: Partnering with a third-party logistics company can ensure that all your shipments are made as affordably and efficiently as possible, from the warehouse to the customer’s delivery location.
Let ShipCalm Help You Mitigate Fuel Surcharges With Our Streamlined 3PL Services Today!
By streamlining your shipping logistics program, combatting fuel surcharges can be accomplished much more easily. Luckily, by trusting a 3PL service like ShipCalm, we’re able to immediately identify ways to save money on your company’s shipping costs so that once those fuel surcharges hit, your bottom line isn’t dramatically impacted. ShipCalm’s pricing calculator can show you how your business can improve with our affordable services. From inventory management to distribution, your business will gain the resources and know-how to prosper long-term with ShipCalm. Contact a ShipCalm team member today to learn more!