The Impact of Fuel Surcharges on Enterprises and Countermeasures

In recent years, a problem that has caused many B2B companies a headache has gradually surfaced - fuel surcharges (Fuel Surcharges). From FedEx, UPS to DHL, major logistics giants have announced to increase this fee. So what exactly is the fuel surcharge? Why is its existence needed? How to deal with it?

Fluctuations in fuel surcharges directly affect the transportation costs of B2B companies. When fuel prices are high, an increase in fuel surcharges may lead to a significant increase in transportation costs, thereby affecting the profitability and competitiveness of enterprises.

The definition and purpose of fuel surcharge

Fuel surcharges are intended to compensate logistics companies for additional costs caused by fluctuations in fuel prices. As fuel prices rise, shipping companies need to compensate for the increased operating costs of their transport vehicles, aircraft and ships. Fuel surcharges ensure that these companies do not lose money due to changes in fuel prices, which can vary significantly over time.

The main purposes of fuel surcharges are:

Balance cost fluctuations: Through fuel surcharges, logistics companies can partially pass on the risk of fuel price fluctuations to customers, thereby keeping operating costs stable.

Ensure service quality: A stable cost structure helps logistics companies maintain high-quality service levels and does not affect services due to drastic fluctuations in fuel prices.

Fuel prices fluctuate, which is undoubtedly a huge challenge for logistics companies that rely on fuel for transportation. In order to cope with this uncertainty, logistics companies usually adjust fuel surcharges in a timely manner according to changes in fuel prices to ensure the stability and sustainability of transportation services.

How does the fuel surcharge work?

Fuel surcharges are usually adjusted based on a fuel price index. For example, FedEx and UPS adjust their surcharge rates weekly or monthly based on fuel price data published by the U.S. Energy Information Administration (EIA). When the price change exceeds a certain threshold (such as USD30), the adjustment mechanism will be triggered to adjust the fuel surcharge accordingly. The specific rate adjustment mechanism can be found on the official website of each company.

FedEx Fuel Surcharge

FedEx calculates fuel surcharges based on the national average price of jet fuel and diesel fuel published by the U.S. Department of Energy. This surcharge applies to domestic and international shipments.

UPS Fuel Surcharge

UPS also uses the average price of fuel as the basis for its surcharge, but the rates may vary depending on the type of service (ground, air, or international freight).

DHL Fuel Surcharge

DHL follows a similar model and adjusts its fuel surcharge based on the market price of aviation fuel and other transportation-related fuels.

Why is a fuel surcharge needed?

Cost compensation

Fuel is one of the largest variable costs in logistics and transportation. When fuel prices rise, logistics companies' operating costs increase accordingly. The fuel surcharge is levied precisely to make up for the losses caused by this increase in costs.

Risk sharing

Fluctuations in fuel prices are unpredictable and it would be unfair to pass them entirely onto logistics companies or customers. The introduction of fuel surcharge actually establishes a risk-sharing mechanism between logistics companies and customers to jointly respond to market changes.

Service guarantee

When fuel prices are high, if logistics companies cannot obtain sufficient compensation, they may choose to reduce service quality or increase other expenses to make up for losses. The collection of fuel surcharges helps logistics companies maintain service quality and operational efficiency.

How to calculate fuel surcharge?

Most logistics providers provide tools or online calculators to determine the fuel surcharge for a specific shipment.

Fuel surcharge = freight × fuel surcharge percentage

For example, if you are shipping a package with a base charge of $100 and the current fuel surcharge is 10%, you will pay an additional $10 in fuel surcharge for a total cost of $110.

The method of calculating fuel surcharges varies from company to company, but generally takes into account the following factors:

Fuel Price Index: As mentioned earlier, fuel surcharge rates are adjusted based on the fuel price index.

Transportation distance and weight: The longer the transportation distance and the heavier the cargo, the fuel surcharge will increase accordingly.

 Mode of transportation: Fuel surcharge rates vary for air, sea and ground freight.

Different logistics companies may have different calculation formulas and rate standards. These surcharges are usually calculated based on a fuel price index and are charged as a percentage of the base freight rate.

Which logistics and distribution services require additional fuel surcharges?

Almost all logistics and distribution services involving long-distance transportation may impose fuel surcharges.

This includes but is not limited to:

Express services: such as FedEx, UPS, DHL, etc.

Freight services: including sea freight, air freight and land freight.

Third-party logistics (3PL) services: Many 3PL companies will also adjust surcharges based on fuel prices.

Whether you're shipping pallets across the country or sending a package overseas, there's often a fuel surcharge to cover the cost of shipping fuel. Whether additional charges and the rate will depend on the logistics company's policies, transportation methods, routes and other factors.

How to reduce fuel surcharge?

Choose the best transportation method: Choose the appropriate transportation method, such as sea, air or land transportation, based on the weight, volume and destination of the cargo to reduce the impact of fuel surcharges.

Optimize transportation routes: Through IoT technology and big data analysis, logistics companies can monitor traffic conditions and vehicle conditions in real time, optimize transportation routes, reduce fuel consumption and transportation time, thereby reducing fuel surcharges.

Optimize cargo packaging: Reduce the volume and weight of cargo to reduce transportation costs and fuel surcharges.

Consolidate Shipments: Consolidate smaller shipments into larger shipments to reduce shipping costs per unit.

Promote green logistics: Using electric or hybrid vehicles for transportation can reduce the need for traditional fuels, reducing carbon emissions and fuel costs. At the same time, logistics companies can also cooperate with urban planning departments to formulate more reasonable and efficient transportation plans to reduce traffic congestion.

Improve the actual load rate: Through stowage transportation and other methods, make full use of the rated capacity of transportation vehicles, reduce the time of empty driving and under-load driving, increase the actual load rate, thereby reducing the transportation cost of unit goods.

Strengthen information security management: Prevent information leakage and unauthorized access, ensure the accuracy and confidentiality of logistics information, help logistics companies improve operational efficiency and reduce unnecessary costs.

Work with a third-party logistics provider: A reputable third-party logistics provider can help you negotiate favorable shipping rates and effectively manage fuel surcharges. B2B companies can negotiate with logistics companies to strive for more favorable fuel surcharge policies or rates.

ChinaDivision’s cost-saving solution for you

Fuel surcharges are an inevitable part of logistics, but with the right strategies and solutions, you can minimize their impact on shipping costs. At ChinaDivision, we understand the challenges posed by fuel surcharges and offer comprehensive logistics solutions to help you mitigate their impact.

Reduce fuel surcharge costs: Benefit from our expertise in negotiating great prices.

Increase efficiency: Optimize your transportation operations to minimize fuel consumption.

Improve cost control: Better understand fuel surcharges and take proactive steps to manage them.

Contact ChinaDivision today to learn more about how we can help you navigate the complexities of fuel surcharges and optimize your transportation costs.

For B2B companies, the key is how to effectively respond to this challenge, reduce transportation costs, and improve market competitiveness. As a professional third-party logistics and transportation service provider, Chinadivision can provide enterprises with customized logistics solutions and help them make more informed decisions regarding fuel surcharges. If you are looking for ways to reduce logistics costs, including fuel surcharges, contact ChinaDivision today. We will provide you with professional logistics solutions and high-quality service experience.