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Percentage Fuel surcharge math.
 
 
Below are two different math examples that illustrate how inaccurate the percentage fuel surcharge is.

1) Percentage Fuel Surcharge Disparity between Shippers
       This analysis is based on two shippers with the same type (class) of freight with the same origin and destination zip codes using the same carrier*. Shipper 2 pays less in fuel surcharge.

Shipper 1: A 60% discount on $2,000 shipment = $800. A 40% fuel surcharge on this $800 shipment = $320
Shipper 2: A 70% discount on $2,000 shipment = $600 A 40% fuel surcharge on this $600 shipment = $240

2) Percentage Fuel Surcharge based on carrier, broker, 3PL or 4PL profit margin.
         Another way to look at it, which quantifies the phrase "fuel surcharge is a profit center for carriers" is by multiplying the carriers profit margin by the fuel surcharge.

Shipment costing $1,000: If the carrier is making 20% on this shipment the carriers profit is $200 without the fuel surcharge. A fuel surcharge of 50% increases the carrier' profit by $100 so the profit is now $300.
Shipment costing $3,000: If the carrier is making 20% on this shipment the carriers profit is $600 without the fuel surcharge. A fuel surcharge of 50% increases the carriers' profit by $300 so the profit is now $900.


This is why the only accurate way to compensate a carrier for fuel increases is by basing the fuel surcharge on mileage. A mileage based fuel surcharge is simple with Truckload carriers but can get very complicated for LTL carriers. LTL mileage based fuel surcharges need to be negotiated on a case by case basis.

As fuel surcharges continue to rise the savings from a mileage based fuel surcharge will be significant for most shippers. In order to evaluate how much your savings would be Transnet can do an audit on your shipments and for a fee renegotiate your fuel surcharge with your carrier or shipment provider.

For more information on fuel surcharge options contact us.

* This also applies to brokers, 3PLs, 4PLs etc. that are charging a percentage fuel surcharge.

 

 
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