Fuel surcharge – how to calculate? Simple instructions for carriers and customers
Fuel prices have always been characterized by volatility, fluctuations and susceptibility to speculation. So what to say in a situation where the wholesale prices of fuels at the time of the update are higher than at the gas station (retail prices)? For the spice, I would like to add that wholesale prices are net and retail prices are gross (with added VAT). It remains for us to add the word „hyper” to all previously used terms, so we have hyper-volatility, hyper-volatility, and hypersensitivity to speculation.
Below is a short instruction on how to calculate the fuel surcharge. It is extremely important that such a fuel surcharge is separated from the overall freight cost and used as an adjustment. It is equally important for both the client and the contractor (carrier). The fuel correction allows you to increase freight cost adequately to the increase in fuel prices (protects the carrier) and to reduce freight cost adequately to drops in fuel prices (protects the client).
Step 1: Fuel share in overall costs
If the fuel price has increased by 30%, then the cost of transport should be increased by 30%?
NO, it would mean that the only cost in road transport is fuel and it is not, we also have a driver, leasing, tolls, operation, administrative costs and others.
Formula for fuel share (FS %): (Fuel cost / total cost) * 100
Example (EUR currency, monthly cost): (3552/8880) * 100 = 40%
Step 2: Determine the terms of the fuel surcharge
- The form of implementing the fuel surcharge (e.g. a provision in orders, an annex to a framework agreement)
- Frequency of rate updates
- Fuel share in freight (step 1)
- Base Freight cost (to which we will apply a fuel surcharge)
- Base fuel price (which we will refer to when calculating the fuel surcharge)
Step 3: Updating the freight cost
Base Freight (BF): 1000EUR
Fuel share (FS): 40%
Fuel price difference (D): + 30%
Correction value formula (CV%): (D / 100) * FS
(30/100) * 40 = 12%
Freight cost update (BF+CV): 1000EUR + 12% = 1120EUR
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