LTL fuel surcharges aren’t all alike

By Ray Bohman -- Logistics Management, 11/1/2005

In the wake of Hurricanes Katrina and Rita, diesel fuel prices shot up to record highs, with the national average price for a gallon of diesel fuel skyrocketing by 34.6 cents per gallon between September 26 and October 3.

Just about every for-hire trucking company has now established a scale of fuel surcharges that is tied to the U.S. Department of Energy (DOE) weekly average for national, regional, or subregional diesel fuel prices. Those average prices are compiled every Monday by the DOE and are released at 4:00 p.m. that afternoon. Most less-than-truckload (LTL) carriers adjust their fuel surcharges—upward or downward—two days later, on Wednesday, based on how the DOE’s average prices relate to their own fuel surcharge scales.

We find that many LTL carriers that operate nationally—companies such as Yellow, FedEx Freight, Roadway, etc.—and interregional carriers, such as Old Dominion Freight Line, base their surcharges on the DOE’s national average price. Some regional LTLs base their surcharges on the national average price, while others base them on the regional or subregional weekly average prices for the regions they serve.

Although most LTL carriers have established their own scales of fuel surcharges under their right of independent action, some have chosen to join with other carriers that set their fuel surcharges collectively through regional motor carrier rate bureaus.

How are fuel surcharges structured? Early on, almost every LTL carrier used a scale that provided for increasing or reducing fuel surcharges by 0.5 percent whenever the weekly DOE average prices rose or fell in 5-cent increments. LTLs that also offer truckload (TL) service raised or lowered their surcharges by 1.0 percent on those shipments. (Carriers that primarily haul truckloads use different methods for calculating fuel surcharges.)

Over the past couple of years, however, many LTL carriers have adopted revised scales that trigger an increase or reduction in their fuel surcharges of 0.1 percent when average diesel fuel prices rise or fall by 1 cent per gallon. For truckload shipments, a 1-cent increment in diesel fuel prices causes surcharges to rise or fall by 0.2 percent.

One key point to remember is that all LTL carriers’ fuel surcharge scales are not alike. Here are some examples of LTL and TL fuel surcharges that some LTL carriers had in effect during the week beginning October 10, 2005:

Clearly, when the spread between LTL fuel surcharges from carrier to carrier can be close to 6 percent, it’s worth checking out the differences between the carriers you may be planning to use. With the cost of diesel fuel continuing to rise, it’s a cost item you can no longer afford to overlook.