What is Fuel Surcharge?
This is an additional fee that carriers charge on top of basic shipping rates. These charges are designed to help these carriers cover the costs associated with fuel, especially given the constant fluctuation in fuel prices.
Why do we need Fuel Surcharge?
Businesses (Carriers / LSP) that regularly ship packages to customers around the world are aware that fuel surcharges can have a big impact on their profit margins. These charges can be very expensive; they can also be tricky to deal with since they fluctuate frequently in line with fuel prices. Since the cost of fuel changes almost by the hour, and contracts are locked in months or years in advance, a fuel surcharge is a way for carriers to account for variations in fuel prices.
SAP TM offers this flexible functionality of determining the fuel surcharge by providing 2 different calculation models so that carriers can choose the best fit model to run their business.
Model 1 (Followed majorly in the US)
The fees charged by each carrier are determined by the weekly National US Average on Highway Diesel Fuel Price report, which is compiled by the US Energy Information Administration (EIA). Internationally, the fuel surcharge rates are calculated by the US Gulf Coast (USGC) price for kerosene. Most carriers use these rates with a standard fuel surcharges calculator (Model 1) to figure out an additional charge that helps them protect their bottom lines.
The business following this model updates the fuel index based on the report published by the Government which is maintained as a rate table in SAP system (Explained below in detail) with a new entry on a weekly basis.
- Basic Master data (Explained below in detail): Freight Agreement, Calculation Sheet, Rate table, Carriers, Locations
- Charge Calculation relevant settings: Charges Profile, Calculation Profile and corresponding assignment to relevant Sales/Purchasing Organization
- Basic configuration of Freight documents
Master Data Maintenance specific to this model:
Following Master data set up is required specifically to set up this scenario.
- Index Rate Table
- Standard Rate table
- Calculation Sheet
Define an Index Rate Table
SAP TM provides a separate column in the calculation sheet specifically designed to support the functionality, called the Index Rate Table. However, the structure of the rate table remains the same as that of the Standard Rate Table.
This is the table the business updates on a weekly basis based on the Government published report.
This index rate table can be set using any scale dimensions such as location, calculation date, gross weight etc., which provides flexibility.