Why is there still a fuel surcharge?

Recently a couple of shippers have contacted us concerned that, even with fuel prices below $1.00/litre, they were still being subject to a Fuel Surcharge. In conversation with other carriers, I recognize that more and more shippers are questioning this same thing. I wanted to take the time to discuss a few points on this issue and explain why a shipper SHOULD WANT to pay fuel surcharges, but should maybe begin to focus on accountability in how it is calculated vs. just being concerns that it exists at all.

The fuel surcharge system came into effect when fuel was at $0.39 per litre simply as a means of mitigating the fluctuating costs of fuel.  It was the early 1990’s when fuel surcharges became widely used and it was primarily due to the price volatility that resulted from the Gulf War. Because of this, shippers will likely continue to see fuel surcharges applied until the price of fuel drops below $0.39. For a long time, I have lobbied the industry to increase the base price of the fuel surcharge formula on the basis that the price of fuel will likely never drop down that low again. However the push-back has been that it is very difficult to know what the base should raise to, and to know exactly how low the price of fuel might go in the future.

A mindset change and shift in our paradigm might be helpful to fully appreciate how beneficial the fuel surcharge is to both shipper and carrier. Fuel Surcharges should not be considered as an ‘addition’ to the rate, but rather as a ‘floating’ portion of the rate. The reality is that if we no longer had a fuel surcharge at $1.00, the customer would no longer receive price relief when the price of fuel continues to drop. As long as there is a fuel surcharge, the customer will continue to experience price reductions that correlate to the price of fuel. If the fuel surcharge is not in place, the shipper loses that benefit.

The real issue is one of accountability. How can a shipper be certain that they are being charged fairly?

Beyond simply trusting their carrier based on their established track record, I would make two suggestions:

1. Establish rates between shipper and carrier that are based on the FCA publicly posted Fuel Surcharge.

  • The FCA is based in Ontario and currently do not offer a Western Canada FSC. This means that the shipper will likely have higher rates because the carrier will need to protect themselves from the variance between eastern and western Canada fuel prices, which can be significant.
  • These FSC rates can be found at: http://www.ntscanada.com/CFS.asp

2. Establish rates and a fuel surcharge formula based on average fuel prices in Alberta as posted by the Government of Canada

  • This is a transparent system because the fuel pricing is based on averages and posted by the Government of Canada
  • The data is historical, so it is not based on the actual price of fuel at the time freight moved, however it is close.
  • This information can be found at: http://www2.nrcan.gc.ca/eneene/sources/pripri/prices_bycity_e.cfm?PriceYear=0&ProductID=5&LocationID=10&dummy=#PriceGraph
  • This information can be automatically sent to both shipper and carrier via RSS feed link on the page so everybody is on the same page
  • The carrier will apply the agreed FSC formula, and the shipper can double check it if there is a concern.