Fuel surcharge

In the spot/broker market where you are signing a rate con for each load if no fsc is offered you just need to figure in the high fuel price on your rate. If you are in the dedicated lane consistant freight market like I am, where I submit bids on lanes that are locked in for a year, then FSC is a must. And knowing what the company pays for a FSC is key to bidding, I have one customer that is currently paying 33.75% FSC but my other customer is paying 16.5% FSC. You are told when bidding lane what their FSC rate is so you can bid your base rate accordingly. If you are contracted they didn't/don't provide FSC and you are locked into a rate thats your mistake. Otherwise you just have to rase your bids on spot loads with fuel going up.

Fuel surcharges are a great tool when they’re used properly. They keep freight rates tied to fuel prices for both the shipper and the carrier, which helps everyone manage volatility.

The problem is they can be a nightmare for accounting departments, especially when the surcharge changes weekly. Because of that, a lot of shippers push back on using an FSC program. If the shipper isn’t offering an FSC, the broker often doesn’t have enough margin in the load to offer one to the carrier either.

Because of the sudden spike in fuel, I think we’re going to see some freight sit over the next couple of weeks until rates catch up to the new fuel prices. When shippers and brokers choose not to use a fuel surcharge, they’ll likely have to renegotiate rates upward to get coverage, and then renegotiate them back down once fuel settles.

That’s the big advantage of an FSC system. Yes, it creates extra work for accounting, but it automatically adjusts with fuel prices so rates move up and down without constant renegotiation.

At the end of the day, shippers have to decide whether they want fuel price volatility to be an accounting burden (FSC) or a sales burden (renegotiating rates every time fuel moves).

For context, diesel prices over the last couple of years have mostly stayed within about a $0.40 trading range. In the last week alone we’ve seen roughly a $1.00 increase, which is about 250% of the volatility we’ve seen for the past two years. Shippers with an FSC program will probably handle this spike better than those without one.

From the carrier side, the recent spike adds roughly $0.20 per mile to operating costs compared to two weeks ago. If a carrier was averaging $2.50 per mile on all miles, with the typical industry margin of 2.5%–8%, loads that were profitable two weeks ago may now actually be losing money.

This tells you who's "driving the bus". Supply and demand.