Editorial: The Dilemma of Fuel Surcharges

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The fuel surcharge dilemma brings to mind a particularly pungent truism: You’re damned if you and damned if you don’t.

The price of the diesel that keeps trucks rolling took another tick upward last week, rising a half penny to $1.294 per gallon. That means the national average, over three straight weeks, has gained back almost half of the 4-cent price break the industry enjoyed well into June.

One could lament the fickleness of the market, but fuel prices have been fairly steady so far this summer compared to the volatility that rumors of war or winter weather tend to generate. We will, however, lament the fact that trucking is paying almost 13 cents more for diesel than it was at the beginning of the year.

It has been enough of a price reversal to put pressure on some trucking operators to implement surcharges on their freight rates as a way of recouping fuel costs. They do so knowing full well that the other guy is going to offer to haul the freight without the surcharge. And it’s really difficult to convince customers that it is in their interests to take the extra hit in order to have healthy carriers available to meet their transportation demands.

As one trucking executive interviewed for this week’s fuel price story put it, “Good shippers recognize that surcharges are the only fair way to deal [with rising fuel costs]. But it only works if it’s universal.”

A lot of trucking operations have gone out of business — nearly 4,000 in each of the past two years, according to one analysis — because they couldn’t cover their costs. So how long do you last when the competition for freight forces you to back off surcharges — or rate increases, for that matter?

Of course, a lot depends on how many carriers are chasing how much freight and all those macroeconomic market forces.

But surcharges are a tough way of covering the increments of your costs. And it’s especially galling when you realize that fuel prices seem to have a lot more freedom to move than trucking rates do.

So there you are: Damned if you do, etc., especially in an industry with the slimmest of margins.

This editorial appeared in the July 15 print edition of Transport Topics. Subscribe today.