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All logistics companies charge a fuel surcharge for all shipments that they pick up and deliver. This is an additional cost that is to be paid by you and is calculated depending on multiple factors related to your shipment including fuel charges for the journey, quantity of shipment and destination.
What is fuel surcharge?
Fuel surcharge is an additional fee charged by logistics carriers on top of basic shipping rates. This surcharge helps carriers cover fuel costs since it is subject to constant fluctuation. This means that the shipping company can compensate for the cost of seasonal and regional variation of the fuel cost while calculating transportation cost.
This surcharge ensures that during fuel price hikes customers pay increased shipment costs, so the transaction is profitable to the carrier.
Surcharge is an additional payment made by customers to service providers during a financial transaction. The most common example is when you make a credit card payment for filling petrol, the transaction also bills an extra 1% of the total cost of the products bought using the card.
For example, you filled petrol worth ₹3000 in your car. You gave a credit card to pay for the transaction. When you check the transaction details on your phone you will be able to see that you were charged around ₹3005 or ₹3018. This extra money includes the surcharge and service tax.
How is the surcharge calculated?
In the US the surcharge is determined by the weekly National US Average on Highway Diesel Fuel Price report published by the US Energy Information Administration (EIA). Unlike the US, India doesn’t have a standard rate of fuel surcharge.
Many Indian logistics companies decide the surcharge amount taking into consideration the US Gulf Coast (USGC) price for kerosene. However, many companies have flat rates decided for fuel surcharges. Therefore, the surcharge charged by companies will be unique and will depend on multiple factors.
The most common factors used by logistics companies to calculate the surcharge includes:
- Base fuel cost
Some companies have a threshold fuel price point set. When a delivery exceeds this limit then the surcharge increases beyond the flat rate set.
- Base fuel mileage
If you have hired a Tata 1512 LPT, the average mileage of the truck would be 6.5 kmpl. This is the base fuel mileage of the truck.
- Average fuel prices
When the shipping company calculates surcharges, they will first take into consideration the average fuel price in the country. This is done mostly by looking at prices prevailing in metro cities. Accordingly, this threshold will be adjusted regularly.
There are other parameters that are taken into consideration for calculating the surcharge. This is different from company to company. Have a look at the factors considered by FedEx Express international shipment for determining surcharge:
The surcharge for each FedEx Express international shipment is assessed on the net transportation rate and the following transportation-related surcharges:
- Additional handling – Freight
- Additional handling – Weight
- Additional handling charge – Dimensions
- Additional handling charge – Non-stackable
- Additional handling surcharge – Packaging
- Adult signature required
- Broker selection option
- Direct signature required
- Indirect signature required
- Out of delivery area
- Out of pickup area
- Oversize charge
- Peak surcharge
- Saturday delivery
- Saturday pickup
Fedex surcharge depends on the U.S. Gulf Coast (USGC) spot price for a gallon of kerosene-type jet fuel. The company has categorised the price ranges of USGC spot prices and determined a flat rate of surcharge for each of these categories. You can visit the Fedex website for their surcharge chart.
Have a look at Blue Dart fuel surcharge:
According to Blue Dart: “The minimum fuel surcharge would be at 50% up to $55 per barrel and thereafter for every $1 fluctuation in the Brent crude price, the surcharge would be adjusted by 0.5%.”
This means that prices up to ₹55 per barrel have a flat rate of surcharge which is 50%. For every ₹1 increase the company will add a 0.5% to the flat rate. Therefore, ₹56 Brent would mean you are paying 55.5% surcharge.
How does fuel surcharges affect your shipping rate?
The surcharge is added on top of your shipping cost. This charge is levied to keep carriers like a trucking company profitable if there are fuel hikes.
Every logistics company regularly revises their surcharge according to fuel prices and market conditions. This means that if you are trying to ship your products after a huge petrol price hike you will end up paying a larger surcharge which will reduce your profit margin.
Fuel surcharge rates in India
Here are few logistics companies of India and their surcharge rates:
|Aramco fuel surcharge rate||13.25%|
|Fedex fuel surcharge rate||50% (for ₹5 and above USGC/gallon)|
|DTDC fuel surcharge rate||50%|
|Delhivery fuel surcharge rate||15%|
|DHL fuel surcharge rate||24.25%|
Fuel surcharge waiver
Everybody must have heard of the term fuel surcharge waiver. This is a service extended by credit card companies for individual customers who wish to pay for fuel purchases through their credit cards.
To understand the meaning of this term you must first know that transactional charges work differently for petrol and fuel companies. When customers pay using their card at any shop the transaction charge levied is usually paid by the shop owner. However, in the case of a fuel business, the customer bears the transaction charge. This is called fuel surcharge for individual consumers.
When you hear certain credit cards are offering fuel surcharge waiver, it means that the credit card is waiving off or eliminating the surcharge you must pay for your fuel expense. Do not think that you are getting a discount on the fuel. The only benefit you are getting is zero transaction cost on fuel purchase from your credit card.
Fuel surcharges are usually around 1% to 3% of the transaction amount.
How to know the fuel surcharges of a logistics company?
Visit the website of your chosen logistics provider. Usually, they will have surcharge calculations written on their website. A simple Google search can directly take you to the fuel surcharge page if the logistics provider has one.
If you don’t find relevant information on the website, contact them directly. They will update you about the pricing details and the surcharges that will be levied on your transport requirement.