What Is a Gasoline Surcharge?
The costs of gasoline, diesel and other fuels have a large impact on the overall economy, affecting the costs of services, labor and transported goods. Workers need gasoline to commute to work in their cars; businesses require fuel to ship goods around the country and deliver them to consumers. A gasoline or fuel surcharge is an additional amount that a business adds to the cost of goods and services to offset the price of gasoline or other fuels.
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Purpose
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Surcharges pass some of the cost of fuel to consumers. When gasoline prices rise, businesses that use gasoline to provide services to customers, such as shipping companies, taxi services and limousine services, face higher costs. If such companies did not impose fuel surcharges, their profits would likely fall due to absorbing the full cost of increasingly expensive fuel. Surcharges essentially allow companies to protect profits from fluctuating fuel costs.
Amount of a Fuel Surcharge
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A company may impose a fuel surcharge based on a percentage of the cost of a service. For example, if the cost of gasoline goes up by 10 percent and, in turn, causes the cost of providing a certain service to go up by 5 percent, the company might impose a 5-percent surcharge to balance the added cost. UPS and FedEx, two of the largest shipping services, impose percentage surcharges on all ground shipments based on the cost of diesel fuel. As of September 27, 2011, both companies impose a surcharge of 8.5 percent on ground shipping.
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Effects
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Fuel surcharges shift the burden of paying for higher gas, diesel and other fuel prices to customers; such charges may discourage consumers from using a particular service. For example, if an air carrier imposes a fuel surcharge, based on the cost of jet fuel, that increases the cost of flying by 10 percent, some customers might find alternative means of travel, rather than pay for more expensive tickets, or choose not to travel at all. An increase in the price of a service tends to reduce consumer demand for that service.
Considerations
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High fuel costs are likely to be detrimental to both consumers and businesses. Even if a business imposes surcharges to offset high fuel costs, reduced consumer demand may to lead to a drop in total sales revenue.
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