Q: The price of diesel fuel is starting to go up again. How do I figure out the amount to charge my customers for a surcharge?

A: A great question! Well, the first thing you need to do is figure out what the price of fuel is doing to you and your company, and then follow the instructions below to actually implement your fuel surcharge.

THE PRICE OF FUEL AND ITS IMPACT

A recent study estimates that the current fuel price spike has added 6.64 cents per mile to the operating costs of truckload carriers who average more than 500 miles per haul. The impact is slightly more (6.77 cents) for those who run less than 500 miles on an average. Refrigerated carriers bore the heaviest burden at 7.45 cents per mile. But these are only averages. Individual truckers can figure out the fuel crisis on their own operation with the following formula:

Step 1: Divide your 2001 fuel cost by total miles driven in 2001 to determine your average cost per mile. Example: If you drove 105,000 miles and spent $26,000 on fuel, your equation would be: 26000 ÷ 105000 = 24.76 cents per mile

Step 2: Next, calculate your current cost factor by taking your cost per gallon now, divided by your cost per gallon in 2001. Example: If the average price you paid for fuel in 2001 was $1.08 and now it's $1.43, your equation would be:

1.43 ÷ 1.08 = 1.32 cost factor

Step 3: Multiply your cost factor (from Step 2) times your cost per mile (from Step 1) to get your new cost per mile. Example: 1.32 x 24.76 = 32.68

Step 4: Subtract your 2001 cost per mile (Step 1) from your current cost per mile (Step 3) to find the amount your cost per mile has increased because of rising fuel prices. 32.68 - 24.76 = 7.92 cents per mile Now get your data together and crunch the numbers to see what your totals are.

IMPLEMENTING A FUEL SURCHARGE

If you are wondering how to set up a fuel surcharge, here’s how to do it. Base your fuel surcharge on the U.S. National Average Diesel Fuel Index. The Fuel Index is published by the Energy Information Admin. of the U.S. Department of Energy and every Monday it is updated. You can get the information by calling (202) 586-6966 or by going to their (long) website address at: www.eia.doe.gov/oil_gas/petroleum/info_glance/distillate.html

On the website, you'll find a table with the prices of fuel in different regions of the U.S. It will give you all the U.S. retail averages of on-highway diesel in cents per gallon (including taxes). Be sure to use the rates from your area for the most accurate calculations.

You can set up an index of your own based on these averages. Most companies start the surcharge chart at $1.10 (and 1%). A good method is to build your index on 10 cent increments. With the national average around $1.47 you should build an index that sets that amount in the middle, allowing for increases and/or decreases.

Since the national average is calculated each Monday afternoon, it would be a good idea to make your weekly adjustments on Tuesday or Wednesday. Small business owner-operators do not need government approval or to file an application with the DOT in order to implement a fuel surcharge. Following is a sample chart, you can use or make to give to your customers.

When the U.S. National Average

Diesel Fuel Index Price is: $1.10 - $1.19 my surcharge will be 1%
$1.20 - $1.29 my surcharge will be 2%
$1.30 - $1.39 my surcharge will be 3%
$1.40 - $1.49 my surcharge will be 4%
$1.50 - $1.59 my surcharge will be 5%
$1.60 - $1.69 my surcharge will be 6%
$1.70 - $1.79 my surcharge will be 7%
$1.80 - $1.89 my surcharge will be 8%
$1.90 - $1.99 my surcharge will be 9%
$2.00 - $2.09 my surcharge will be 10%

If the current price of fuel is $1.47, your surcharge would begin at 4%. If the price dropped to $1.37 the following week, the surcharge would then be 3%. As the fuel crisis gets worse, your surcharge gets higher. As the problem tapers off (if it ever does), your surcharge will slowly go down until you can discontinue it altogether. Be sure to notify your customers with either a letter or a faxed memo that goes something like this:

Dear XYZ Customer, As you are no doubt aware, fuel prices remain at historic levels. ABC Trucking has acted in good faith to resist seeking price relief as long as we possibly could. Due to the critical nature of the current situation, we can no longer continue to absorb the extra cost. Therefore, effective xxxxx, 2002, we must implement a temporary fuel surcharge of xxx percent on all shipments. The fuel surcharge will remain independent from our base rates and will be shown as a separate entry on our freight bill. The fuel surcharge amount will be a percentage of the net line haul charges. Our pricing is based on the U.S. National Average Diesel Fuel Index. We will review this data on a weekly basis. We deeply appreciate your understanding and partnership with us in helping to share the burden of these fuel cost increases.

Respectfully,

John Jones - ABC Trucking

I hope all this has made sense to you. If not, read it again. If you are still confused, call me at (562) 630-7637 and we can talk more about it. Next month: more on the Alameda Corridor project and the Port Idling bill. Until then, "Drive Safe - Drive Smart!"