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  1. #1
    Diamond Member magicman's Avatar
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    Default How fuel surcharge works....

    I know there are some out here that spout off about fuel surcharge and have NO idea how it works, or how it's figured. So, I thought I'd give a lesson in it. This is BASIC, guys, so don't hang me if it doesn't meet EXACTLY what you or your company does.

    First of all, you have to establish a baseline. This is the price all surcharges start at. For example. Many large carriers use $ 1.15 per gallon of fuel, as the base. This figure is obtained from the weekly figures released by the DOE. I put a link to that up, earlier, as a Sticky.

    Now, you have to set papameters of how often you raise the surcharge. The big boys use 6 cents as the figure, governing the rate increase. In other words, if fuel is at $1.15, Nat'l average, there is no surcharge. Now, when fuel EXCEEDS $1.21 per gallon, or it rises 6 cents, a 1 cent fuel surcharge kicks in. Now, it doesn't take a brain surgeon to figure out if it goes up 1 cent for every 6 cents price increase, all I have to do is maintain a 6 mpg average to break even. Pretty simple, huh? I guess it's not, to some. If you drive like fuel is free, that 1 cent increase, every 6, isn't gonna help, that much. But, conversely, if you slow down, making your fuel mileage go up to let's say 7 mpg, all of a sudden, you're MAKING money off the fuel surcharge, not just holding your own. I'll give an example, later on.

    Now, some companies charge their customers a surcharge based on the fleet rate their trucks are getting. I know of one company that uses 5.7 mpg as the average, and $1.20 per gallon as the baseline. So, every time the prise jumps 5.7 cents, they get another 1 cent rise in FSC. Some guys in that company make out well, with this, others do not, if they can't get decent fuel mileage. I know, until lately, I've been losing my butt because of fuel mileage. BUT, I do believe the engine has finally broken in. My mileage is up over 6 mpg, since I left California, and I've been to NJ, MA, CT and back to PA. My readout says I'm getting 6.6 mpg, right now. FINALLY, decent mileage.

    Since I have to go make like a driver and pay a lumper and get my bills, I'll stop here, but resume it in a couple hours. There is more to this story. And some of it involves brokers. and unscrupulous practices. Be back soon, for Part 2.
    Last edited by magicman; 03-26-2008 at 09:04 AM.
    Calling an illegal alien an "undocumented worker" is like calling a drug dealer an "unlicensed pharmacist".

  2. #2
    Diamond Member magicman's Avatar
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    Default Re: How fuel surcharge works....

    OK, here's Part 2:

    When I was leased onto Landstar, the company took 22.34% right off the top. I got more than many, because I have a reefer trailer, and that paid me 10% extra. So, here's how it worked, ONCE in awhile, at Landstar.

    I would see a load on the board for let's say $2.25 per mile. I would call the agent and get the info on the load, seeing if I really wanted it or not. Say I do want it, so we get into the FSC discussion. Occassionally, the agent would say, sorry, the shipper won't break out fuel, which really means Landstar, and by extension, that agent gets 22.34% of my FSC. That sucks. Figure it like this:

    2.25
    X.2234
    _________
    .50265 Which means Landstar gets $.50265 of my load. I end up with $1.74735 per mile on the load. What most agents do is break out the fuel. Using our 6 cent per gallon scenario from before, The fuel cost, today is $3.98 per gallon. Subtract the baseline of $1.15 from it and you end up with $2.83, which is where your division goes. 2.83 divided by 6 equals .47. So, FSC should be $.47 per mile. When the agent breaks it out, here's what you end up with:
    2.25
    -.47
    _____
    1.78
    X.2234
    _______
    .397652 Now subtract that from the $1.78 that equals $1.382348 PLUS you now add the fuel surcharge back on, and you get $1.852348 per mile to the truck. Which is a helluva lot better than the rate I got without breaking fuel out. It made me $.104998 per mile MORE than the other way. On a 2000 mile trip, thats $210.

    Now, we'll discuss unscrupulous brokers.

    Say the shipper calls a broker to get a truck to haul a load from Philadelphia, PA to Los Angeles, CA. He asks what it would cost. the broker says he'll get back with him, after he gets some info, as to when it needs to go and so on.

    The broker figures the going rate he can get it hauled for is at let's say $1.50 per mile. He figures the load at 2732 miles, which he got from PC Miler, Practical miles. He knows the rate he can get from the shipper is more like $2 per mile, so that's what he quotes it at. Then, he tells the shipper there is also .70 for FSC, since the load is going to California. He says he's really sorry, but carriers just won't take it with out a higher fuel surcharge. The shipper says he understands, knowing full well gas is killing him going back and forth to work. So he agrees to pay the following to the broker.

    $5464 rate
    $1912.40 fuel surcharge
    ____________________
    $7376.40 Total


    NOW, this is what the broker posts on the load board:

    Philadelphia, PA to Los Angeles, CA $5412 all inclusive.

    Some poor Independent calls up and says "how much is the fuel?" Broker tells him it's included. Driver says no way, I want at least $1000 more to haul it. Broker says he'll check with the shipper, but he doubts it. He then goes to lunch with his secretary.

    2 hours later, he hasn't had any more calls on the load, so he calls the guy back and tells him he did all he could do, but the shipper just won't go any higher than $250 more. The driver thinks about it, knowing freight off the East Coast does suck, so he says, I'd go for $500, not $250. The broker says he'll see, but no promises. He messes around, for another 45 minutes and calls the driver back saying nope, they wouldn't do it. The driver, who's invested most of the day on this really want's to say 'No' but he says he'll do it, but it has to pay at least another $100. So the broker says he'll pay him the $100 out of his own pocket, because he knows how bad the fuel is killing the poor drivers. So, the driver ends up taking the load for $5762.

    The driver ends up making right at $2.11 per mile on practical miles. He hangs up and tells his wife how he beat the broker down for $2.11 per mile on that load and feels great.

    The broker goes to the motel with his sexertary...er secretary, thinking how he just made $1614.40 in a few phone conversations and how he did that 8 times this week. Dumbazz truck drivers.

    Think it doesn't happen?????? Here ya go......

    A friend's brother knows a guy in Omaha that has a small flooring business, They do tile, carpet and any other flooring imaginable. He told Tim, that his FREIGHT bill has went up over $8700 from last year at this time and the loads were almost identical. Tim thinks he gets 2 trailerloads a month in. Now, that's pretty damned good freight rates, if you ask me. I don't care where the stuff came from, it's going to Omaha, NE, so it can't be too far away.
    The explanation is the trucks are taking more fuel, so the end user ends up paying for it. Hey, the guy's got 2 or 3 trucks that he has to fuel, so he understands. Especially since those BIG trucks get such poor fuel mileage.

    I think I'll find this guy and offer to haul flooring in 2 times a month for him. For $1000 less than he's paying now. I can hire some dumbazz to do it for $6000 less and I can stay home. $6000 richer.

    Remember, the guy said it's costing him $8700 MORE than last year.

    See, they're out there.
    Calling an illegal alien an "undocumented worker" is like calling a drug dealer an "unlicensed pharmacist".

  3. #3
    Member Uturn2001's Avatar
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    Default Re: How fuel surcharge works....

    Sadly it is all to common that the person paying for the fuel does not get 100% of the fuel surcharge. This kind of BS happens all the time to O/O's regardless if they are dealing with brokers or leased to a company that provides their freight for them.

    Passing a law that requires 100% of all fuel surcharge monies be passed on to the person who actually pays for the fuel is the one thing that the government could do to help the industry,

  4. #4
    Diamond Member magicman's Avatar
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    Default Re: How fuel surcharge works....

    That, I agree with, 100%, UT. In that scenario I gave, the broker hosed the driver out of 45 cents per mile. (I figured a .25 cent FSC, in my mind, knowing how some of these jerks work.)

    OOIDA has tried, unsuccessfully, more than once to do this. Maybe this is a time, they should lobby for this, again. But, if they do get the ear of a Congressman, we need to start calling our own representatives and hammer them with this. We also need to have friends asnd relatives do the same. Furthermore, as in OOIDA's previous efforts, there should be a set FSC, for normal loads. We all realize that some loads, like over-dimensional, have certain restrictions and special needs and should be dealt with seperately. I also feel a Nat'l fuel surcharge should be based on an average of all trucks, from IFTA records. Hard to lie on those, any more. Used to be you put whatever you wanted for miles and sent it off. Now, they want odometer miles and they better match, in an audit. I'd be willing to bet overall, Class 8 trucks only get around 5.3 to 5.5 mpg on average.
    Calling an illegal alien an "undocumented worker" is like calling a drug dealer an "unlicensed pharmacist".

  5. #5
    Silver Member SpotsCat's Avatar
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    Talking Re: How fuel surcharge works....

    How fuel surcharge works for me --

    The company collects it. I get paid the same, regardless.

    Life is good as a company schlub, there's so much less stuff to worry about!
    SpotsCat is a trademark of SpotsCat Intergalactic Enterprises LLC, All Rights Reserved. Unauthorized use of the exceptionally witty material contained herein shall be prostituted to the fullest extent. Trespassers will be shot.

  6. #6
    Diamond Member The_Governor's Avatar
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    Default Re: How fuel surcharge works....

    Quote Originally Posted by SpotsCat View Post
    How fuel surcharge works for me --

    The company collects it. I get paid the same, regardless.

    Life is good as a company schlub, there's so much less stuff to worry about!

    I worked 14 hours today.............I drove 502 miles...........my gross pay was $272.00(assuming everything over 8 becomes overtime)

    Average hourly rate was $19.42 or .54 cpm however you want to look at it.

    I'm happy being a "company schlub" as well

  7. #7
    Diamond Member PartTimeDweller's Avatar
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    Default Re: How fuel surcharge works....

    I have to disagree on the Government passing more laws to protect stupid people. It is simple, an O/O that has any lick of business sense will make sure the contract with either the company leased to or the company hauled for stipulates that said O/o gets 100% of the FSC, if not, walk away. it is ridiculous to expect the Government pass laws to save people from their worse enemies, themselves.

  8. #8
    Diamond Member snoope's Avatar
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    Default Re: How fuel surcharge works....

    How the fuel surcharge works in the "Rock" industry.......If it is written into the contract,Ok..if not T.S....

    And Gov...11 billable hours to the truck today...$715 gross,195 miles .minus fuel and me. $421 total....the boss is still HAPPY


    Snoope
    [Snoope back quiet]
    "God is great ,beer is good and People are crazy"

  9. #9
    Diamond Member magicman's Avatar
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    Default Re: How fuel surcharge works....

    Sure is strange the ONLY feedback this post is getting is from company drivers, that really don't care, because they get paid, anyway. Not slamming you guys, just making a point.

    I find it interesting that not ONE Lease operator has chimed in, here. Probably too embarrassed to admit they had no idea how it works.

    I did have a conversation with a Trucking company owner and he reminded me that there is such a thing as FSC billed and FSC collected. That can be a big difference, too. But that's all in the details of the contract with the customer.
    Calling an illegal alien an "undocumented worker" is like calling a drug dealer an "unlicensed pharmacist".

  10. #10
    Bronze Member maxmiddle's Avatar
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    Thumbs up Re: How fuel surcharge works....

    We are a small company contracted to haul meat for Swift & Co (the meat packer, not the trucking outfit). We charge a FSC according to the national average. Once a week, the company notifies us of what the FSC for the coming week will be. We then go online and confirm the national average and using a sliding scale that is written into our contract, that is what we bill.

    Swift uses a third party billing company, so sometimes there are discrepencies. Usually a phone call to Swift and the billing company gets them straight.

    I am the only owner/op in the company. I get 100% of the billed surcharge since I purchase all my own fuel. I am fortunate in that the company owner is my brother, so there is no problem seeing exactly what is billed. If however, your brother does not own the company you lease to, you are still entitled to see the bills. This is federal law and should be written into your lease. If it isn't or they won't show you, you need to contact someone like OOIDA. They give great advice even to non-members.

    FSC doesn't cover all the fuel increase, but it takes a large bite out of the pain. We (and we are a pipsqueak 14 truck company) DO NOT haul without a FSC. If the shipper or broker doesn't pay a reasonable one, we decline the load. Period end of conversation.
    If it ain't broke, fix it til it is!

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