Each major freight and logistics transportation mode requires fuel to ship goods, whether by air, by sea, by rail or over the road. While gas prices and oil markets certainly impact everyday drivers, the cost of fuel also has a big impact on freight and logistics budgets. Fluctuating fuel costs can both directly and indirectly affect freight rates (and add fuel surcharges), which in turn affect prices for shippers to move goods and eventually, product prices for the end consumer. Getting back to fuel types, diesel predominates on land, with freight trains used for intermodal transport and semi-trucks both using the same type. Ocean freighters use the less refined marine fuel known as bunker fuel - either high sulfur fuel oil (HSFO) for ships with exhaust gas scrubbers or very low sulfur fuel oil (VLSFO) for those without. And finally, jet fuel is generally kerosene. These fuel types all differ from the unleaded gasoline used in most passenger vehicles.
What is a fuel surcharge?
When gas prices jump above their typical average, freight carriers are likely to levy a fuel surcharge to shippers. A fuel surcharge is a fee to protect the carrier against unanticipated jumps in fuel prices. The fuel surcharge is not unique to one particular transport mode, as any form of freight transportation - whether truck, rail, container ship or airplane - may charge one. Fuel surcharges are calculated in different manners by different carriers as there is no federal mandate or regulation surrounding them. But it's important for carriers to be transparent with their methodology, as fuel surcharges have been the subject of litigation.
Some general commonalities in fuel surcharge do exist though. Carriers consider a baseline average projected fuel price, often planned for the year, then institute the surcharge based on how far above that baseline prices go. In the U.S., carriers must use U.S. Energy Information (EIA) figures. The surcharge itself is then calculated based on that difference above the baseline and the mileage of the trip, also accounting for projected mile per gallon fuel usage. For the domestic trucking market, an average rule of thumb is an increased fuel surcharge of one cent for every six cents the diesel price rises above that baseline - known as a Mileage Based Fuel Surcharge. This is also a method used by rails, though some employ a Percentage Based Fuel Surcharge - basing surcharge calculations off the prevailing rail freight rate.
As with many fees, things are not always simple. For example, a shipping line typically refers to a fuel surcharge as a Bunker Adjustment Factor (BAF) - though sometimes it's a little more clearly called a Bunker Fuel Surcharge. In air freight, fuel surcharges may be referred to as carrier imposed fees or charges. Another factor some shippers may not consider: even when working with a logistics service provider or freight broker, these fees must sometimes be paid directly to the carrier. Either way, ensure how it's noted in a quote, as different brokers handle these charges differently. Plus, fuel prices may be built into a higher freight rate instead of a hefty fuel surcharge. Regardless, the more detail, the better for the shipper, both to avoid unanticipated fees and budget for those that can be more readily planned for.