Why Transborder Fuel Surcharge is Lagging behind the Fall in Fuel Prices
Over the last 12 months, we’ve experienced a dramatic decline in fuel prices for the US DOT National average. A 30% decline in the last 12 months. We often get the question: so why aren’t transborder fuel charges falling so dramatically? Here’s the answer:
While the price of diesel has fallen dramatically in the US and Canada, transborder shipments are unique in that there are different factors at play in terms of how fuel works out as part of the cost of transportation. The factors are:
- 80% of the miles are in the US (approx): for example, when you drive from Toronto to Texas, about 80% of the miles are in the US.
- Fuel is typically purchased in the US because that’s where the truck is most of the time.
- The Canada/US exchange rate plays a large role because the typically Canadian carrier has to exchange funds to buy the fuel.
The underlying cost of fuel is based on the price of oil. A huge part of the Canadian Economy is oil revenue. As the price of oil falls, so typically does the Canadian Dollar, making foreign purchases more expensive. So, when the price of oil drops the drop in fuel prices for transborder shipments are somewhat offset by the fall in the Canadian Dollar.
Bringing Exchange Rate and Fuel Prices Together
|Date||US DOT Nat. Avg.||Exchange Rate||Real Cost of Fuel in Canadian Dolars|
So you can see from the example, while the USD price of fuel has dropped 30%, the real cost to Canadian transborder carriers has only fallen 18%. Since the bulk of transborder shipments are delivered by Canadian carriers, this is a very large factor for consideration in transborder fuel surcharge calculations.