Oil prices increased by 12.9% in the first quarter of 2024.
The IEA Oil Market Report (OMR) is one of the world’s most authoritative and timely sources of data, forecasts, and analysis on the global oil market, and their report indicates that the world oil demand is on track to expand to 1 mb/d in 2025. This is pushing logistics costs to the highest they’ve ever been!
As supply chains battle inflation and shifting geopolitical conditions, the fuel surcharge—a fee added to account for fluctuating fuel costs—has become a critical yet contentious element of business operations.
For industries like freight and aviation, where margins are razor-thin, fuel surcharges help maintain stability amidst volatile oil markets. But in 2025, this practice isn’t just about offsetting costs—it’s reshaping strategies forcing businesses to embrace transparency and sustainability.
With customers increasingly scrutinizing fees, and green energy altering cost dynamics, understanding fuel surcharges has never been more crucial. Whether you’re a business or a consumer, mastering the mechanics of fuel surcharges can save money, reduce disputes, and help navigate the ever-changing economic terrain. Let’s dive into what’s driving this pivotal shift.
What is a Fuel Surcharge?
A fuel surcharge is an additional fee imposed by businesses to offset fluctuating fuel costs. It’s typically calculated as a percentage or flat rate added to the base price of goods or services. This adjustment ensures companies can manage unexpected spikes in fuel prices without compromising their profitability. Fuel surcharges are particularly common in industries where fuel consumption forms a significant portion of operating expenses, such as transportation, logistics, and aviation.
The Backstory: How did Fuel Surcharges Originate?
The concept of a fuel surcharge emerged in the mid-20th century, primarily during the energy crises of the 1970s. Rapid increases in oil prices created instability, forcing businesses to find a way to pass some of the burden to their customers. Since then, fuel surcharges have become a standard mechanism to cope with unpredictable fuel price volatility.
Over the years, fuel surcharges have evolved in their application:
- 2000s: Became more structured, with standard formulas tied to benchmark fuel prices, such as those published by the U.S. Department of Energy (DOE).
- 2010s: Companies began using surcharges as a flexible tool, adjusting them weekly or monthly based on fuel index fluctuations.
- 2020s: As sustainability became a focal point, some businesses started integrating fuel surcharges with carbon offset fees to align with greener goals. For example, environmental charges on airline tickets will be the norm from 2025.Lufthansa Airlines, a popular German airline, is introducing a compulsory “environmental cost surcharge” on flights from an EU country, the UK, Norway, or Switzerland starting in 2025. This will add as much as €72 to a first-class long-haul ticket. On short-to medium-haul flights, the surcharge could be closer to €1-€7.
Industries Where Fuel Surcharges Are Common
- Logistics and Freight: Fuel costs heavily influence shipping rates, making surcharges a necessity for carriers like FedEx and UPS to maintain profitability.
- Aviation: Airlines often include fuel surcharges in ticket prices, especially for international flights where fuel is a significant operational cost.
- Public Transportation: Buses, taxis, and rideshare companies sometimes incorporate fuel surcharges to adjust for rising fuel expenses.
- Maritime Shipping: With large cargo ships consuming vast amounts of fuel, shipping companies apply surcharges to mitigate cost variations.
By understanding the origins and evolving trends of fuel surcharges, it becomes clear why they remain a vital component of modern pricing strategies, especially in fuel-reliant industries.
Fuel Surcharge Example and How It Works
Imagine you’re shipping a 50-lb package with a base shipping rate of $30 per package. If the fuel surcharge is 12%, you’d pay an additional $3.60, bringing your total to $33.60. This cost adjustment enables carriers to manage fuel price increases while upholding service standards.
How a Fuel Surcharge is Calculated
According to the United States Energy Information Administration (EIA), fuel prices can be influenced by factors like:
- The cost of crude oil (which is the main indicator of a diesel fuel price)
- Oil refining expenses
- Fuel station costs and profit margins
- Taxes
Fuel surcharges are designed to adjust for the fluctuating costs of fuel, ensuring businesses can manage price volatility without compromising their financial stability or service quality. Let’s break down the mechanics:
Fuel Surcharge Calculation Process
Base Fuel Price vs. Fluctuating Market Price
- Fuel surcharges are typically calculated based on the difference between a pre-determined base fuel price and the current market price of fuel.
- For instance, if the base price is set at $3.00 per gallon and the market price rises to $4.00 per gallon, a surcharge might be applied to cover the $1.00 difference.
Percentage or Fixed Fee Added to Invoices
- Surcharges are often expressed as a percentage of the total invoice or as a fixed fee per shipment.
- For example, a logistics company may add a 10% surcharge to invoices or charge a flat $15 per shipment to account for rising fuel costs.
How FedEx Calculates Fuel Surcharges
FedEx applies fuel surcharges to shipping costs to account for fluctuating fuel prices, ensuring consistent service levels without frequent rate changes. These surcharges are calculated as a percentage of shipping rates and are updated weekly, based on benchmarks like the U.S. Gulf Coast jet fuel price for Express services and the U.S. Energy Information Administration’s average on-highway diesel fuel price for Ground and Freight services. This dynamic adjustment helps FedEx manage fuel price volatility efficiently.
Here’s a snapshot of FedEx package and express freight fuel surcharge rates from their weekly surcharge table:
How UPS Calculates Fuel Surcharges
Just like FedEx, UPS too determines surcharges weekly, based on indices such as the U.S. Energy Information Administration’s average on-highway diesel fuel price for ground services and the U.S. Gulf Coast Jet Fuel Price for air services. The surcharge is applied as a percentage of the shipping rate, adjusting in line with current fuel price trends.
Here’s the latest weekly surcharge table:
In fact, UPS says that the U.S. Ground Domestic Fuel Surcharge and Ground Fuel Surcharge for UPS SurePost will be set in relation to the Average On-highway Diesel Fuel Pricing table:
How to Manage Fuel Surcharges as a Consumer: Best Practices in 2025
Fuel surcharges can add significant costs to shipping and logistics. As a shipper, there are strategies to manage these costs effectively and maintain your budget.
Discussing Fuel Surcharges with Suppliers
Request detailed breakdowns of how fuel surcharges are calculated. Transparency ensures you’re only paying legitimate fees and allows you to assess the fairness of the charges.
Exploring Alternative Shipping Options
Local Suppliers: Choosing regional carriers can significantly reduce shipping distances, minimizing or even eliminating the need for fuel surcharges.
Consolidated Shipments: Combine multiple shipments into one to lower transportation costs. Bulk shipping reduces fuel consumption per unit, leading to smaller surcharges or discounts.
Monitoring Fuel Indexes and Predicting Costs
- Stay informed about current fuel prices by tracking benchmarks like the U.S. Department of Energy’s fuel indexes.
- Understanding market trends can help you anticipate surcharge changes and plan shipments accordingly.
- Some tools and platforms provide predictive analytics to estimate future fuel costs, allowing you to adjust your logistics strategy in advance.
By employing these tactics, you can gain greater control over fuel surcharges, reduce their impact on your bottom line, and build more cost-effective relationships with your suppliers and logistics partners.
Struggling to stay ahead of the changing landscape and streamline your shipping strategy? The Sifted team is here to help. Connect with us today to discover how we can guide you through these challenges and unlock greater savings for your business.
