One of the most significant concerns truck drivers and contractors raise is the volatility of fuel prices.
Due to the ever-changing prices of gasoline and petroleum, contractors have to make sure they don’t spend more than what they have as a fuel budget.
This reason is why FSC or Fuel Surcharge exists. Primarily, it is a fee that contractors use to surmount the variety in fuel costs over specific regions. However, most people don’t know what it is or how to utilize it.
Conveniently, we wrote a detailed explanation of what is FSC in trucking that addresses all the concerns you have in mind.
As we explained before, FSC is a charge that contractors use to protect themselves from hiking fuel prices. Usually, the charge is set between the shipper and a third party that adjusts the fuel’s standard rate.
It is only valid when the fuel price hits the specified amount of volatility, leading to the surcharge.
Price volatility refers to the sudden fluctuations of a product’s price. If you have a certain budget set for your project and the costs become volatile, it can seriously mess up your funds.
This caveat is why both carriers and contractors use Fuel Surcharges to offset the price volatility of fuel.
The concept of prices constantly fluctuating is nothing new as it has existed for ages now. Due to the laws of supply and demand, the price of a particular commodity may go up or down drastically and completely ruin the standard pricing.
There are numerous reasons why such a phenomenon occurs in the industry. One such reason is the increase of demand that hikes the prices to kingdom come. When demand increases, it far outweighs the production of the commodity and ends up being rarer than it is in its actual state.
Another reason is when manufacturers intentionally jack up the prices in hopes of extra profit. Unfortunately, many companies do this in secrecy, and there is no way of telling whether a volatile market price is intentional or not.
Because of all of these reasons, the value of a market can fluctuate a lot and hamper any new development or change.
Understanding fuel surcharges might be easy, but the real problem arises when you are trying to calculate it. Costs are constantly fluctuating, so you have to keep many variables in the equation to properly assess the amount of fuel surcharge you need to offset the price volatility.
As a baseline, you can follow this formula to assess the FSC amount appropriately-
- Get a base price for the fuel the vehicle is using. Every time, the cost of the fuel goes beyond the base price, and the FSC is assessed and applied to the equation.
- Adjust the basic fuel mileage for the fuel you are using. Generally, the mileage comes down to 6 miles per gallon of fuel.
- Factor the national and regional prices into your equation. You can usually acquire them from an authoritative board like the US Department of Energy.
Imagine if the base fuel price was 1.5 dollars and the present fuel cost is 3 dollars. In this case, you need to get 1.5 dollars extra for each gallon of fuel you purchase while transporting cargo. Generally, your cargo rates are measured per mile driven, so you need to find the FSC per mile as well.
Remember the fuel mileage? This is where it comes in handy. If you know the fuel mileage, you can correctly assess how much you need to charge as the fuel surcharge amount.
If the base price is 1.5 dollars, then you need to divide it by the miles per gallon amount of your vehicle. An amount of 5 miles per gallon would have a fuel surcharge of 0.30 dollars per gallon. Meaning, you have to pay 30 cents for every extra gallon you incur during a situation of volatile prices.
You can calculate the amount of fuel surcharge more quickly if you lease your contract to a company. For this procedure to work, you need to have knowledge of the actual costs per mile.
Firstly, you need to compare the load rate and FSC to your actual cost per mile. If the rate of fuel surcharge goes above your expenses, you won’t have to pay more. But, you need to account for FSC if the actual price per mile is higher than the rate of the load.
If you can comprehend the functionality of fuel surcharges, you can actualize the potential for profit that is within them. FSC calculations generally have some kind of fuel mileage average. A small fleet owner can always overwhelm the averages and earn a bit of extra profit from them.
If you want to manage your fuel surcharges properly, you can set up a corresponding schedule that dictates when you need to pay those fees. It is a tabular structure, where each line has a date and an FSC rate that you want to charge. These rates remain the same until the succeeding date on the table.
If you manage to get to the last date on the table, the FSC rates will stay constant for a long time, and you can only change them when you add a new line. For each row, you have to write a data entry for the rate and a distinct RPM or rate per mile.
This entry will be helpful if you want to employ different methods. For specific customers, you can customize your schedule to contain a particular data field regarding fuel surcharges.
With different tables, you can charge one customer a specific rate with a certain set of conditions, while other customers get the standard rate.
Can You Profit from FSC?
Contrary to popular belief, contractors and drivers can profit from fuel surcharges using well-thought-out fuel economy praxis. You have to consider a ton of factors like rolling resistance, gravity, etc. Also, you can limit idle time by reducing starts and stops. Fuel conservation is key to achieving a profitable fuel economy.
If you feel like your company’s fuel surcharge is not enough, you can compare it to other carriers and see how they fare against your rates.
When a customer doesn’t pay surcharge fees, you shouldn’t accept the contract unless you are still profiting from the load alone. Recouping your fuel expenses is key to not losing precious resources.
This reason is why you should learn how to calculate fuel surcharges correctly. By implementing proper FSC rates into your contracts, you can save up to thousands of dollars every year.
Fuel surcharge is a relatively foreign concept for contractors and drivers alike. But, proper utilization can help both go a long way in conserving their fuel economy and turning a decent profit.
Hopefully, our comprehensive guide explaining fuel surcharges and their aspect can answer the question of what is FSC in trucking aptly.
Most descriptions of surcharges do not go into the nitty-gritty of a particular matter, which leaves a lot to be desired in terms of information. Luckily, you’ll now be able to calculate and utilize them properly in your contracts.