Fuel surcharge

Diesel is one of the largest and most volatile lines in a haulier's cost structure. Rather than reopening a tariff every time it moves, carriers fix a base rate at the start of the contract and then publish a surcharge percentage that tracks an index — weekly, monthly or quarterly.

The surcharge is applied to the base transport price, not to the whole invoice: accessorial charges are usually excluded, and whether the minimum charge is included depends on the tariff conditions.

For a broker the surcharge is a pass-through with a timing risk. If the buy-side surcharge updates monthly and the sell-side quote is valid for 30 days, one of the two will be wrong for part of the period.

Cargavo is a TMS for freight brokers: the indexed fuel surcharge is a first-class concept in its engine, configured per grid, applied on the buy side and the sell side in the same pass.

Cargavo is a TMS for freight brokers, and reproducing this arithmetic is exactly what its engine does per grid. Three inputs are needed, and all three come from the contract, not from the market:

• Base index — the diesel price at which the negotiated base rate was set. Below it the surcharge can be negative.
• Current index — the published value for the current period.
• Fuel share — the proportion of the carrier's cost structure represented by fuel, agreed in the contract.

Working the example above: (1.61 - 1.40) / 1.40 = 15% index movement; 15% x 25% = 3.75%. On a 200 EUR base price the surcharge is 7.50 EUR, so the buy rate is 207.50 EUR before options.

The index only works if it is unambiguous. A clause reading "the diesel price" is unenforceable; a clause naming the publication, the series, the reference period and the publication lag is.

In France, article L.3222-1 of the code des transports requires road haulage contracts to include a fuel-cost indexation mechanism, which is why French tariffs almost always carry an explicit index clause. Other markets rely on contractual practice rather than statute.

Cargavo, a TMS for freight brokers, stores the surcharge percentage against each grid so a new index period is a value to update, not a tariff to rebuild. It does not fetch index values automatically — there is no external data feed in the product.

Both practices exist and both are defensible, but they must be stated in the customer agreement, because the difference shows up the moment diesel moves sharply.

The second method is easier to explain to a customer and easier to audit. The first reflects the fact that a broker carries the working capital on the surcharge too. Cargavo is a TMS for freight brokers and computes the order you configure, on the buy side and the sell side, in a single engine pass.

A fixed surcharge only survives while diesel is calm. When it moves, the carrier either absorbs a loss or reopens the contract mid-term, and reopening a contract mid-term costs more relationship capital than the surcharge is worth.

The practical middle ground used in many contracts is indexation with a trigger threshold: the surcharge is recalculated only when the index moves by more than an agreed percentage, which keeps quotes stable for small fluctuations.

Cargavo, a TMS for freight brokers, treats the surcharge as a value on the grid rather than a hidden constant, so changing period is a single edit and every quote issued after it carries the new figure. Historic quotes keep the surcharge they were priced with, under their Q-YYYY-NNNN reference.