What is fuel surcharge?

Diesel prices are a major factor of volatility in the transportation industry, which can put companies in financial danger if not handled correctly. Since fuel costs make up a significant portion of the carriers’ sales cost, it affects the price charged to shippers.

With diesel prices on the rise in the past weeks by over 28%, the logistics industry is rapidly taking measures and adjusting by applying fuel surcharges: a mechanism used to balance fluctuations in fuel costs in the logistics industry. In other words, it is an additional fee over the current agreement when the cost of fuel rises more than expected. This allows companies to protect themselves against price volatility by separating fuel from other more predictable cost components, such as wages and fixed operating costs. Transportation companies typically provide a base rate and a fuel surcharge which depends on the distance they travel and cost of the fuel at any given moment.

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