LTL Fuel Surcharge: Past, Present and Future
In the early 1970s the US Department of Energy began to calculate the national average of diesel and track its fluctuation. This rate was set and updated on a weekly basis and was the beginning of the fuel surcharge.
So what is a fuel surcharge?
A fuel surcharge is a calculated rate for fuel based on the USDOE national average price for diesel in conjunction with a carrier’s fuel surcharge table. It wasn’t until the mid-1990s that the fuel surcharge became a feature in a carrier’s rules tariffs to provide a baseline to charge customers.
With the recent drop in fuel, many carriers have made the decision to update their fuel schedule to accommodate the current lower cost. This change was due to the base rates not factoring the fuel dropping to the record lows. (Logistic rates are currently calculated by a variation of rate bases which are based on a fuel level that was set years ago).
Carriers are virtually left with two options to overcome this:
One is updating their fuel schedule. This adjusts cost on a shipment-by-shipment basis.
The other option is to update the rate base, which has an effect on pricing as a whole instead of a shipment-by-shipment basis.
This raises the point; will current fuel levels ever be calculated in the base rate of our pricing instead of as a surcharge?
I believe that may very well be a possibility with the advancement in technology and talk of dimensional pricing. Only time will tell.
Patrick Hart, Manager of Strategic Pricing