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Current Diesel Price ($/gallon): Note, here current diesel price doesn’t mean today’s diesel price in a particular state. Instead, it’s actually the weekly national average diesel price published by the DOE (U.S. Department of Energy). The DOE typically releases this average price each Monday.
Of course, this price keeps changing each week and drives the diesel surcharge.
Base Diesel Price ($/gallon): This is the fixed diesel price negotiated and set in the freight contract. Fuel surcharge applies only when the current diesel price exceeds the base diesel price.
Miles per Gallon (MPG): The fuel efficiency of trucks calculated as miles per gallon (how many miles a truck can deliver with 1 gallon of diesel). The freight contract also mentions this.
Loaded Miles: The distance (measured in miles) a truck travels while carrying freight. It’s the distance that generates revenue. For example, a truck with cargo travelling 700 miles from Chicago to Dallas. Here, 700 miles is the loaded miles. What if the same truck, after delivering the cargo at Dallas, moves 120 miles to Houston to pick up the next cargo? These 120 miles are called empty miles and shouldn’t be used to calculate surcharge.
Therefore, the surcharge is calculated only on loaded miles.
Fuel Surcharge: The extra cost per mile added to freight costs to cover fuel volatility. Measured in $ per mile. Note: this isn’t a profit for the truck or the freight company. Instead, it’s a pass-through cost.
Total Fuel Surcharge: While the fuel surcharge, as discussed above, is a surcharge per mile, the total fuel surcharge is the total surcharge for the loaded miles travelled.
Fuel surcharge (per mile) = (Current diesel price - base diesel price) / MPG
Fuel surcharge (per mile) = (3.85 - 2.50) / 6 = $0.225 per mile.
Total fuel surcharge = Fuel surcharge per mile x loaded miles
Total fuel surcharge = $0.225 x 1200 = $270