Fuel surcharges are invisible to many online shoppers, but they're a vital part of the shipping world. A single fuel surcharge usually adds up to only a few cents, especially while fuel prices are low, but over time, if you're not accounting for it, your business can lose money and have serious accounting headaches.
Keep reading to learn more about how to account for fuel surcharges in your warehouse management practices.
What Is a Fuel Surcharge?
When you buy something online, the fuel surcharge is typically calculated into the shipping cost for you, and therefore it isn't noticed. As a result, many people who ship products may not be entirely sure what a fuel surcharge is, especially if they're new to the industry.
As you know, the price of fuel can change dramatically over time. To reflect this, carriers implement a fuel surcharge that reflects the current price of fuel. It's typically calculated based off of the spot price for a gallon of either diesel or jet fuel, depending on the shipping method (ground vs. air).
Every month (or so), carriers update their fuel surcharge information, which is freely available online. While some carriers may send advance notifications, it's more common that companies monitor and update this information manually. This surcharge is expressed as a percentage of the base shipping fee and is then added on to that base to determine the final price the carrier will charge to deliver the package.
Managing Fuel Surcharges
Different systems have different ways of handling fuel surcharges. Some companies, especially large ones, may have fuel surcharges completely automated. They may pull information from the carrier's websites and place the information into a database, so all shipping computations use the most up-to-date information available.
Alternatively, companies may manually enter fuel surcharge information into that database (which is then drawn from automatically for each shipment), or you may need to compute it for every transaction manually.
Fuel surcharges typically aren't large — usually, in the range of 3 to 5 percent (depending on the global oil market) — and may only add up to a few cents. There's no way of getting out of paying the fuel surcharge, so it's not something your business can cut costs on. But if you forget to add the fuel surcharge into the price of shipping each package, or if you don't adequately adjust the fuel surcharge over time, you can end up with serious problems.
If these surcharges aren't accounted for, your books won't line up with the invoice you receive from the carrier. Again, you'll typically have only a few cents per package unaccounted for, but process hundreds or thousands of transactions a day/week/month, and this is enough to keep your books from balancing.
And, because the fuel surcharge is small, invisible and changes over time (often without carriers sending out formal notification), it's easy to forget about it. If you have a small discrepancy with your shipping costs, especially near the time the fuel surcharge changes, double-check that a changing fuel surcharge isn't the culprit.
A fuel surcharge can be a serious headache to accountants, and if it becomes high, it can eat into a business' profits. But by staying proactive, monitoring the rate over time and adjusting your books and shipping costs accordingly, you'll keep your books in order and won't take a financial hit.