How is the additional fuel charge calculated? You should know

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Fuel surcharges are a common logistics cost, especially in international shipping. This article will provide a detailed explanation of fuel surcharges, their significance, and the relevant details of calculation and collection to help you better understand and manage shipping costs.

what is a fuel surcharge

What is a fuel surcharge?

A fuel surcharge (FSC) is an additional fee charged for transportation services due to fluctuations in fuel prices. Airlines, shipping companies, or freight forwarders usually charge this fee to customers to compensate for increased operating costs due to higher fuel prices. Fuel surcharges are not fixed and are adjusted regularly based on fuel prices in the international market.

Why is a fuel surcharge needed?

Fuel costs fluctuate

Fuel prices are affected by international oil prices, political factors, and changes in market supply and demand and are, therefore, subject to high fluctuations. A surcharge allows shipping companies to respond flexibly to these changes without frequently adjusting the base freight rate.

Guaranteeing service quality

Charging a fuel surcharge, logistics companies can maintain service operations and avoid reducing service quality due to rising fuel costs.

Transparent pricing

Fuel surcharges are listed as a separate fee, which helps customers clearly understand the impact of fuel costs on shipping prices.

How is the fuel surcharge calculated?

The specific calculation method for fuel surcharges may vary depending on the shipping company and mode of transport but generally follows these principles:

Fuel price index: This refers to an international fuel price index (e.g., the aviation fuel price index or the road transport fuel price index), which reflects changes in fuel prices.

Fuel price benchmark: A fuel price benchmark is set. When the fuel price exceeds this benchmark, the fuel surcharge will increase; otherwise, it may be reduced or canceled.

Fuel surcharge rate: An appropriate rate is determined based on the extent of fuel price changes and other cost factors and is usually expressed as a percentage.

Example formula:

For some ocean freight scenarios, the fuel surcharge can be estimated using the formula: Standard fuel surcharge per UNIT = (Bunker price – Base price) * Factor + Low-sulphur fuel surcharge.

When is the fuel surcharge charged?

The fuel surcharge is usually adjusted dynamically based on the latest fuel market price and updated monthly or quarterly. Specifically:

Periodic assessment: Transportation companies will regularly (e.g., monthly or quarterly) review the current fuel price level and adjust the fuel surcharge accordingly.

Immediate response: In response to significant price fluctuations, some companies may adjust more frequently to ensure market changes are reflected promptly.

Contractual provisions: In the case of long-term contracts, the starting conditions, adjustment frequency, and calculation method for the fuel surcharge may be clearly defined.

How to deal with fuel surcharges?

Understand surcharge policies in advance.

When signing a logistics service contract, clarify the calculation standards and adjustment mechanisms for fuel surcharges.

Optimize transportation plans

Rationalize transportation routes and times, choose the most economical transportation method, and reduce overall logistics costs.

Negotiate with logistics companies.

For long-term cooperation in bulk transportation, you can negotiate with logistics companies to get more favorable surcharge rates.

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