Operations

Rising Fuel Costs Prompt Surcharges

Posted on April 3, 2003 by LCT Staff - Also by this author - About the author

Sharply rising gas prices earlier this year have prompted many operators around the country to add a fuel surcharge to their fees. LCT’s random sampling of operators showed that most were choosing a percentage-based surcharge, which sometimes changes based on fluctuating gas prices, while others were opting for a flat rate. A few have chosen to stay away from surcharges.

Are there federal or state regulations governing fuel charges? “You can charge whatever you want as long as the [client] agrees,” said Jon Chester of Southern California-based Limousines by Linda, who is also the president of the Greater California Livery Association and a lawyer. As long as the surcharge is disclosed in some way on the service contract, he added, it is perfectly legal.

Chester said he has added a 3% fuel surcharge. The general consensus among California operators, he said, is that most have imposed a surcharge, which comes as no surprise since the state’s gas prices passed the $2 per-gallon mark early this year. Some operators attending a recent GCLA meeting confessed to adding fuel surcharges ranging from 2% to 10%, while others said they have instituted a flat rate because it is easier to justify and work into contracts.< p=""> At Presidential Limousine in Denver, Michele Rossi said she is charging a fuel surcharge but buries it in what she calls a 5% administration fee, which she charges regardless of gas price. When gas prices are high in Denver, like March’s price of roughly $1.65 per gallon, the fee helps pay for fuel, she said, adding that the fee pays for other expenses when gas prices are lower.

“If the gas price is down to 99 cents per gallon, you don’t get customers asking why you are charging a fuel surcharge,” she said. “This way there are no hard feelings. We don’t have to fluctuate the charge and get irritated customers.” Rossi added, however, that she believes most operators in Colorado do not have a fuel surcharge.

Michael Zappone of Newburg, N.Y.-based All Transportation Network said many operators are too quick to jump on the surcharge bandwagon, whether the issue is rising gas prices, insurance or worker’s compensation. It might be healthier, he said, if operators raised their base rates to reflect additional expenses instead of continuously adding various surcharges.

“At some point, you have to look at your cost of doing business and adjust your rate accordingly,” he noted.< p=""> Even with gas prices ranging from $1.80 to $2 a gallon in New York, Zappone has not yet added a fuel surcharge. He said he would consider it should gas prices stay high for a long period of time. If gas prices fail to roll back to their previous range of about $1.30 to $1.70 in New York within a 90- to 120- day period, he said, a fuel surcharge might be justified.

However, Zappone suggsted operators should be as equally willing to remove a surcharge should economic conditions improve as they are to add one when conditions worsen.

Such is the philosophy at California-based Music Express. The company implemented in February a temporary fuel surcharge, which will be eliminated as soon as gas prices fall back to what Music Express officials called “a reasonable level.”

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