Let’s look at another important term in freight industry – fuel surcharge.
If you want to know what it is, calculation process or how it affects shipping from China – then read this guide.
- What Is A Fuel Surcharge?
- Why Do Carriers Charge A Fuel Surcharge?
- Which Issues Contribute To The Volatile Rise Of Fuel Prices?
- What Is The History Of Fuel Surcharges?
- How Does Fuel Surcharge Work?
- How Are Fuel Surcharges Calculated?
- What Is The Purpose And Advantage Of Fuel Surcharge Calculator?
- Is Fuel Surcharge Applicable On All Shipments?
- What Are The Factors On Which Fuel Surcharge Is Dependent In Shipping?
- Can I Negotiate A Fuel Surcharge?
- What Is The Difference Between Fuel Surcharge And Bunker Adjustment Factor?
- Are Fuel Surcharges Legal?
- Is Fuel Surcharge Taxable?
- What Does 100 Fuel Surcharge Mean?
- Who Regulates Fuel Surcharges In The Freight Industry?
- How Does A Fuel Surcharge Affect My Shipments?
- What Are The Tips To Reduce Fuel Surcharges During International Shipping?
- Can I Completely Avoid The Fuel Surcharge On My Shipping Expense?
- Is Fuel Surcharge Any Different From Emergency Bunker Surcharge?
- What Are Some Additional Shipping Surcharges?
- How Can A Third-Party Logistics Company Help Me Avoid Shipping Surcharges?
What Is A Fuel Surcharge?
A fuel surcharge is a cost that carriers add your final shipping invoice to over for the fluctuating fuel cost. Fuel often fluctuates, resulting in loss-making on the part of your carrier during the shipment of your goods.
The fuel surcharge helps in mitigating the effect of fluctuation and stabilize the shipping process.
However, the actual cost varies depending on the type of carrier you are using and the type of goods.
Why Do Carriers Charge A Fuel Surcharge?
The price of fuel is relatively unpredictable due to several factors such as demand and OPEC policies.
This causes the price to change, often making it hard for your shipper to determine it accurately.
To ensure the smooth shipment of your cargo, carriers usually add a charge on the shipping cost to cover the unexpected fuel fluctuation.
This charge is the fuel surcharge.
Which Issues Contribute To The Volatile Rise Of Fuel Prices?
The volatility rise in fuel prices is due to several factors. Some of these factors are controllable, while others depend on external forces.
Such factors include:
Sample fuel prices
OPEC members are those countries that produce oil and therefore affect their overall supply.
Therefore, the decision they come up with has a bearing on the fuel supply and prices.
These members regularly meet to discuss oil demand and supply and control the prices of oil and oil products.
Most of the world oil supply comes from the middle east. However, the political instability of that region causes the price of oil to change.
When there are no fights in the area, then the price remains constant until when instability begins.
Unstable Economic Outlook
An unstable economic outlook causes the price of fuel to drop to meet the demands.
This is because there is minimal cash to purchase the fuel.
However, when there is a positive outlook, the demand usually increases fuel prices.
Demand And Supply
Demand and supply affect the price of oil in the same way as it affects prices of other goods.
When the demand is high, OPEC members tend to reduce the volume of production, which translates to the high price of fuel.
When there is low demand, members agree to increase supply which reduces the price of fuel.
Production And Storage
The production and storage of fuel differ among the OPEC members.
For instance, the production and storage of oil in the US is higher than that of the middle east.
Recent years has seen countries producing fuel store in for future use while reducing the production volume.
Naturally, this affects the overall price of fuel.
What Is The History Of Fuel Surcharges?
You can trace the origins of fuel surcharge back to the 1970s when there was a fuel crisis.
Then, Congress mandated the interstate commerce commission to permit carriers to bypass rate approval systems.
Such carriers would impose a fuel surcharge within a day’s notice to shippers.
One of the key functions of this commission was regulation of trucking rate to ensure there is fair pricing.
In the 1970s, the Interstate Commerce Commission formulated that allowed carriers to impose fuel surcharges.
However, the carriers also were free to develop their policies on how to apply the fuel surcharge rates.
How Does Fuel Surcharge Work?
The main intention of the fuel surcharge is to regulate the shipping process and ensure free and fair competition.
When a carrier ships goods, they have to ensure that the fuel pricing aspect is spread across the cargoes.
The calculation of this cost differs from one carrier to another.
However, there are different factors that all carriers have to consider before deciding their fuel surcharge cost.
These factors include base fuel cost, base fuel mileage and average fuel prices. A fuel surcharge cost assures the shipper of secure shipping of your goods.
How Are Fuel Surcharges Calculated?
There is no definite way of calculating the fuel surcharge for your shipment.
Different shipping companies have different ways of calculating their fuel surcharge.
However, the following are critical when calculating your fuel surcharge:
Base Fuel Rate
Base fuel rate refers to the price of fuel beyond which there is an activation of the fuel surcharge.
When the prices of fuel rise beyond the base fuel rate, you shipper has to factor the fuel surcharge on the final invoice.
Base Fuel Mileage
This refers to the amount of fuel that shipping vessels consume per mile.
Base fuel mileage gives you a factor of fuel consumption that shippers use to calculate the fuel surcharge.
Average Fuel Price
The average fuel price refers to the national average fuel.
It depends on the geographical region and government authority of a shipper.
The common formula for calculating a fuel surcharge in average fuel priceless base fuel rate.
The result you divide by the base fuel mileage.
(AFP-BFP)/BFM= Fuel surcharge.
What Is The Purpose And Advantage Of Fuel Surcharge Calculator?
A fuel surcharge calculator helps give an accurate cost that you are to pay for shipping your cargo.
This prevents the likelihood of your carrier conning you or you shortchanging your carrier.
It is advantageous since you can predict the cost you are to pay at the end of your shipping.
Is Fuel Surcharge Applicable On All Shipments?
OPEC Basket Price
Yes. Fuel surcharge applies to all shipments.
This is because for you to receive your cargo, you have to ship your cargo. Shipping uses fuel whose price varies during shipping.
You, therefore, should expect a fuel surcharge cost on the final invoice that you get from your carrier.
What Are The Factors On Which Fuel Surcharge Is Dependent In Shipping?
Fuel surcharge depends on the following factors during shipping:
The longer the distance is for your shipping. The higher the fuel surcharge you have to pay.
This is because fuel consumption by your carrier depends on the distance it is travelling.
You can reduce the fuel surcharge here by checking on the shortest route possible that your carrier can use.
The different carriers available use different strategies to calculate the fuel surcharge that you are to pay.
You, therefore, have to select a carrier with favourable fuel surcharge rates for use.
You can also negotiate with such a carrier to reduce your fuel surcharge before engaging them.
Volume Of Goods
In most cases, a fuel surcharge is not a flat rate fee that you pay regardless of the shipping volume. Instead, the rate depends on the quantity of your shipment.
The higher the quantity, the higher you have to pay for your shipment. However, you can still negotiate with your shipper to reduce this cost for you.
This is by buying a large volume of cargo and enjoying the benefits of economies of scale.
An ideal packaging is the best way of ensuring the safe shipment of your cargo.
However, packaging has an impact on the fuel surcharge that you are to pay.
You can consult with your freight forwarder on the best packaging material to use to prevent the additional fuel surcharge.
The season you are shipping in determines the amount of fuel surcharge to pay.
High season shipping attracts high fuel surcharges compared to low season shipping.
This is due to the high demand for shipping space on the shipping vessels.
Therefore, the best way of reducing your fuel surcharge here is to ship during the low season.
Can I Negotiate A Fuel Surcharge?
Yes. You can negotiate a fuel surcharge depending on your carrier.
However, you need to understand that shipping is an expensive affair, especially the cost of fuel. Therefore, most carriers propose that you have a long-term contract with them, reducing the overall fuel surcharge cost.
What Is The Difference Between Fuel Surcharge And Bunker Adjustment Factor?
There is no difference between a bunker adjustment factor and a fuel surcharge in terms of their function.
However, a fuel surcharge is common in the trucking industry, while the bunker adjustment factor is common in ocean carriers.
Are Fuel Surcharges Legal?
Yes. Fuel surcharges are legal.
Legal requirements help regulate the shipping industry and ensure shippers don’t get lost during the process.
It also facilitates the faster shipment of your goods.
Is Fuel Surcharge Taxable?
Yes. A fuel surcharge is taxable.
However, the tax percentage depends on your region and that of your carrier.
You will notice this figure when you receive the final invoice from your shipper.
You can also ask your shipper for the taxation procedure for this fee.
What Does 100 Fuel Surcharge Mean?
This indicates the party which claims the fuel surcharge cost and how much they claim.
For instance, if you have 100 fuel surcharges, it means the entire amount of your fuel surcharge goes to your carrier.
However, this price does not affect the final cost you are to pay as a shipper.
Who Regulates Fuel Surcharges In The Freight Industry?
A fuel surcharge is an accepted international cost of shipping. Its regulations depend on the region and the laws governing the particular industry.
How Does A Fuel Surcharge Affect My Shipments?
A fuel surcharge is an additional cost to your shipment.
The effect of this is you have to spend more for purchasing a given amount of goods.
Fuel surcharge keeps changing depending on external factors. This has a negative impact if you are handling a small or medium business.
You have to keep adjusting the prices of your product to reflect the fuel surcharge cost.
Unfortunately, price variation means you don’t have stable clients, which can ruin the profitability of your business.
There are several ways you can control fuel surcharges from affecting the profitability and operation of your business.
For instance, you can opt to purchase your goods in bulk.
This way, you have stock to cushion you if there is a change in fuel surcharge cost.
You can also opt to ship during off-peak seasons when fuel surcharge is low.
Entering a long-term contract with your shipper can help reduce the effect of fuel surcharges.
This way, you don’t have to worry about the changes since the contract guides you.
What Are The Tips To Reduce Fuel Surcharges During International Shipping?
Reducing fuel surcharges during your international shipping is essential in reducing the overall shipping cost.
There are several ways in which you can achieve this, including:
Searching For The Best Rates
Each shipper has its fuel surcharge rates, which they offer depending on several factors.
Most shippers factor in a small percentage of profitability on their surcharges.
It is therefore critical that you check on these factors before deciding which shipper to use.
Once you have your shipper, you can reduce the fuel surcharge by negotiating with them.
There are several factors you can include during your negotiation, such as distance and shipping time.
The longer the distance, the higher the fuel surcharge.
Going through the various alternative routes helps in deciding which distance is shorter hence reducing the charge.
Peak seasons means there is a higher demand for shipping vessels hence an increase in the fuel surcharge.
In addition, most shippers are also afraid of shipping risks hence tend to increase the fuel surcharge.
You can reduce this charge by choosing off-peak shipping.
How you package your goods determine the overall fuel surcharge that you pay.
If you want to reduce the overall fuel surcharge, you have to use the correct packaging material.
You can consult your manufacturer on which material to use for your packaging.
The right material ensures you have the right fuel surcharge while protecting your cargo.
Can I Completely Avoid The Fuel Surcharge On My Shipping Expense?
It is impossible to avoid a fuel surcharge on your shipping expense completely.
This is because for you to receive your goods, your carrier has to ship them.
Shipping results in the use of fuel from which is critical in basing the fuel surcharge.
However, it is possible to minimize this cost by considering several options.
Is Fuel Surcharge Any Different From Emergency Bunker Surcharge?
No. there is no difference between an emergency bunker surcharge and a fuel surcharge.
However, emergency bunker surcharge is common in ocean and air freight.
A fuel surcharge is a common term in truck shipping. Both terms help in minimizing the fluctuating fuel cost.
What Are Some Additional Shipping Surcharges?
There are other additional shipping surcharges that you experience aside from the fuel surcharge. They include:
Additional Handling Surcharge
This cost is for extra handling of your goods during shipment.
It ensures shipping of your goods is n the correct way, and there is no damage during handling.
It mostly covers goods that are above 48 inches.
However, the exact amount varies depending on various factors, like carrier and the handling requirements for your goods.
Packaging prevents any tempering of your goods during shipping.
For instance, proper packaging prevents water sipping to your goods, thereby damaging them.
Packaging surcharge is a cost that covers such an expense on your shipping.
Print Return Label Surcharge
If you use a print label for your return cargo, you have to pay a surcharge fee.
Delivery Area Surcharge
You have to pay this charge if you want your carrier to deliver your cargo to your location far from their designations.
It facilitates delivery while protecting your cargo.
The cost of surcharges differs depending on the carrier.
Therefore, you must shop around before deciding which carrier to use for your shipment.
How Can A Third-Party Logistics Company Help Me Avoid Shipping Surcharges?
There are different ways in which third-party logistics can help you avoid shipping surcharges. Some of these ways include:
Packing using inappropriate packaging material can increase your fuel surcharge.
A reliable third-party logistics company can help you reduce this by offering the right packaging material for your goods.
The right packaging material reduces the overall packaging and fuel surcharge for your cargo.
Shortest Shipping Routes
Longer shipping distances increases the shipping surcharges for your cargo.
However, you can minimize these surcharges by selecting a shorter shipping route for your cargo.
A shorter shipping route reduces the fuel surcharge since the fuel consumption is low.
A third-party logistics can help you in finding a carrier with a shorter route for your cargo.
Bargaining is critical in lowering your shipping surcharges.
Finding reliable third party logistics can help you in the professional bargaining of your fuel surcharge.
Logistic providers understand the right shipping season for your cargo.
When you engage them, they can give you advice on when it is the right time to ship your goods,
There are numerous benefits when you ship during the low season.
For instance, you get enough space for your cargo and at a cheaper rate.
This helps in reducing the overall shipping surcharge.
At BanSar, we help you reduce the shipping cost when importing from China – contact us now.