OOIDA proposes mandatory fuel surcharge

by Paul Cullen Jr.

During this fuel crisis, there have been many proposals in Congress to cut the fuel tax, draw down the strategic oil reserve, and investigate OPEC for its market fixing practices. This is because the fuel crisis has primarily been viewed as a problem with the world oil market. OOIDA looks at the fuel crisis not exclusively as a problem with the oil market, but also as a symptom of problems within the trucking industry. Those problems include the inability to set rates high enough to compensate for basic costs, including sharp increases in diesel fuel prices.

That is why OOIDA devised a proposal to require all motor carriers, brokers and freight forwarders to impose a mandatory minimum fuel surcharge and, where applicable, pass 100 percent of that surcharge on to the person who paid for the fuel, the owner-operator. Furthermore, the proposal would make it unlawful to reduce rates for the sole purpose of compensating for the fuel surcharge.

Details of how the fuel surcharge formula would function

  • The amount of the surcharge would rise and fall with the price of fuel.
  • Fuel surcharges could be calculated as a percentage of the freight bill or on a mileage formula.
  • Mandatory fuel surcharges shall be at least the amount necessary to compensate the payer of the fuel for the increased price of fuel.
  • A formula would be devised that would track the Energy Department's weekly survey of diesel fuel prices at the pump. When prices deviate sharply, the surcharge would kick in.

Benefits of this solution

  • Permanent solution to address unpredictable fuel price increases in the future.
  • Cost of fuel increases no longer borne solely by small business truckers with the least capacity to afford such costs and the least ability to pass on those costs.
  • Motor carriers, brokers and freight forwarders who impose fuel surcharges are no longer at a competitive disadvantage for doing so because all must impose it.
  • The economy would avoid a disruption in transportation. Historically, fuel surcharges have been the only successful solution for the trucking industry

Fuel surcharges are a well-established practice within trucking. Each of the regional motor carrier rate bureaus and most larger motor carriers now have established fuel surcharge schedules. Few, however, have the market strength to impose or collect fuel surcharges.

Fuel surcharges have also been the federal government's response in each of the past fuel crises, even when the industry was still economically regulated. During the fuel crisis in 1973 and 1974, the Interstate Commerce Commission granted motor carriers the ability to bypass the Commission's tariff filing/approval process and impose an emergency fuel surcharge with only one day's notice.

Recognizing the serious impact that fuel price increases have on independent owner-operators, Congress passed a law in 1974 that required compensation paid to owner-operators by motor carriers be increased to compensate for fuel price increases over the previous nine months. At the time, the ICC had written an order to mandate this compensation to owner-operators, but the ICC did not have the authority to promulgate the order in less than 30 days. Both the House and Senate recognized the serious impact of the fuel crisis on the transportation industry, specifically owner-operators, and the need for fast action. Within a three-day period, a law was passed requiring the ICC to short-circuit its bureaucratic process and to issue its order within the following week.

In 1975, the ICC again established an expedited procedure for regulated motor carriers to reflect rapidly rising fuel costs in their rates in the event of a future fuel crisis.

In response to escalating fuel prices in 1979, the ICC instituted several orders allowing for a revenue-based surcharge procedure for carriers and a requirement for carriers who used owner-operators to pass the surcharge on to the person responsible for paying the cost of fuel, the owner-operator. In 1981, the ICC eliminated its revenue-based fuel surcharge program, replaced it with a mileage-based surcharge formula, and required motor carriers to pay owner-operators for their fuel costs based on the new formula.

During both regulation and deregulation, the trucking industry has always been vulnerable to rapid increases in the cost of fuel. Independent owner-operators have long been recognized as the first victims of the trucking industry's inability to meet its basic costs. The use of a fuel surcharge and the mandatory pass-through to owner-operators is a well-established response by industry and government to help motor carriers and owner-operators survive and stay in business. 

Where is the fuel surcharge proposal now?

OOIDA has been working with Rep. Nick Rahall (D-WV) ranking member of the House Ground Transportation Subcommittee, to draft legislation that would impose the fuel surcharge. OOIDA has issued a "Call to Action" asking its members to urge their lawmakers to support Rahall's mandatory surcharge proposal. Lawmakers are already hearing from shippers, brokers, and even a few trucking companies who are opposed to a mandatory fuel surcharge. For the proposal to be successful it needs support from the House Transportation and Infrastructure Committee. Members of this committee will only take interest and support this proposal if they get significant and constant contact by the small business truckers from their congressional districts.