Diesel Floater - Everything you need to know

The cost situation in the transport industry is constantly changing and one of the main reasons (besides driver shortages) for this is the fluctuating price of diesel. Fuel costs, along with vehicle and personnel costs, are one of the most important components of the freight price. The prices of fuel make up 25-40% of the transport. Freight forwarders and transport companies monitor price developments very closely and adjust freight prices quickly, especially when diesel prices rise. With diesel floating, the transportation industry responds to these price developments. The diesel floater - a fuel surcharge that we automatically adjust to current prices on a monthly basis - counteracts the fluctuating prices. In a nutshell: If fuel prices fall, you pay less for your transport. If prices rise, transportation companies have to increase the cost of our forwarding services accordingly.

In this article, we provide all relevant details about the current diesel prices, the significance of diesel floaters for transportation businesses, and other industry-related service providers.

What is diesel floater?

The diesel floater is a variable surcharge that adapts to changes in the price of fuel automatically. Its sole purpose is to offset changing diesel prices. The diesel surcharge is therefore a flexible pricing component on top of a basic price for transport and is commonly referred to as a diesel floater. It is agreed individually between the customer and the transport service provider. The valid diesel surcharge is usually shown as a separate item on the forwarding invoice.

Why is a diesel floating so important?

Fuel has more and more become an uncertain cost factor that fleet managers and freight forwarders must deal with due to significant price fluctuations in diesel. Fixed fees can be risky for both the transportation service provider and the shipper. In extreme cases they do not cover the increased costs for the service provider or the shipper is simply paying too much. With the diesel floater the handling of fuel price changes as most fluctuating price components can be managed from the start by an appropriate agreement. This eliminates the need for unwanted interactions between the parties. As a result, a diesel floater is a suitable approach to fairly settle the problem of fuel price changes between contracting parties. It is frequently implemented on the basis of transport volume and is agreed universally with all service providers.

A diesel floater agreement, if properly chosen, is an effective tool for regulating the handling of fuel price changes in a fair and transparent manner based on cooperation in a business relationship that is intended to last at least the medium term between the shipper and the transport service provider. Furthermore, buyers should always specify their own diesel floater when requesting prices. This ensures that all service providers calculate on the basis of the same floater and that prices are truly comparable.

How to calculate a diesel floater surcharge?

There are several ways to create a diesel floater surcharge mechanism. First, the diesel floater surcharge majorly depends on the individual shipment structure of the transportation company and the related share of fuel costs to its overall cost of transportation (e.g. FTL vs. groupage). Second, there are various variants of how and when the freight prices are to be adjusted if diesel prices have changed.

Below you can find a step-by-step description of the best way to design a diesel floater surcharge.

Step 1: Choose diesel price index

First the transport service provider and the consignor agree on a diesel price index. A diesel price index shows the monthly average diesel prices. Logically these diesel price indexes follow the fluctuation of the diesel prices, are a suitable basis for depicting the fluctuation of the diesel price and therefore a suitable component of the surcharge. Since in Europe the diesel prices are fluctuating over countries, country specific indexes need to be considered. Examples for such diesel price indexes in Germany are:

Step 2: Create surcharge table

A structured representation of the diesel floater surcharge is in most cases a table showing how exactly the diesel prices affect freight prices.

To calculate the diesel surcharge the transport service provider only has to multiply the share of his individual diesel costs of his total costs (so-called diesel cost share, for example 28 percent) by the diesel price index change.

In order to avoid constant recalculation for each minimal change in fuel prices the transportation service provider as well the shipper agree on diesel fuel surcharge steps based on a from-to range in the diesel price. In the following table for example each 0,0375 € / liter diesel change will increase the surcharge by 0,5%.

You can find the instructions on how to calculate your individual fuel surcharge both in English and German. Click on the icon below in order to download this file in Excel format.

Screenshot of calculation table in Excel:

Example of fuel surcharge made by IMPARGO. The example table displays a surcharge calculation with a constant diesel cost share of 28% and a diesel fuel price basis of 2,10 € per liter.

An EXAMPLE how to read the table above: According to the above shown diesel floater agreement the transportation service provider would increase his originally agreed freight rate by 2,5%, if the diesel price in the average price index would reach 2,29 € per liter (gross). So if there was an agreed rate of 1,50 €/km at the beginning of the contract (with a diesel price of 2,1 € per liter at that time), then the transportation service provider will charge 1,54 €/km (1,50 €/km x 1,025 = 1,5375 €/km).

How to determine your share of diesel cost to overall cost

The most suitable diesel floater variant depends on the individual shipment structure of the transportation company. If the transportation company transports mainly in groupage, a variant with lower surcharges applies. In the LTL / FTL area, the surcharges or discounts are correspondingly higher for the same diesel price fluctuation.

With this in mind, it is of utmost importance to determine the share of diesel cost to overall transportation cost. Here you can find a comparison between an FTL/LTL and groupage transport in the table below. As you can see, the share of fuel cost for FTL/LTL with ~ 38 % of overall cost is considerably higher than for groupage transports with ~ 22 %. Through the planner tool of IMPARGO’s transport management platform, shippers and carriers are able to calculate their diesel cost share, and also to calculate their freight rates. In the end of this table, you can also find the links to IMPARGO's truck route planner with toll calculator so that you can see in more detail the cost variants of these two types of transport types (FTL/LTL vs Groupage).

Step 3: Agreement and application

The third requirement is an unmistakable formulation for the use of the diesel floater. This diesel price escalation clause should be agreed in writing with the shipper. There are various variants of how and when the freight prices are to be adjusted, if diesel prices have changed. Clearly formulating this mechanism is very important and prevents later misunderstandings.

The role of BGL in diesel fuel prices

The range of diesel prices has never been wider than in the last five years, when price increases look random but are not non-influential for the consumer. It is crucial for freight forwarders to keep an eye on diesel prices. On the one hand, they must be able to understand the service providers' (carriers or subcontractors) price adjustments and, on the other hand, to take action themselves when prices fall. In this matter, the Federal Association for Freight Transport and Logistics (BGL) in Germany plays a vital role.

This German association provides corresponding evidence for both overall cost development in the transportation sector (industry cost development) and specific cost element development. The publishing of this diesel price information follows a set schedule and it’s available on the BGL website.

Current diesel prices in Germany

In September 2022, the price of diesel has dramatically increased. The German Federal Statistical Office provides the evolution of diesel prices for large-scale consumer sales on a regular basis. Since the official price statistics are based on the detection of price changes, the price estimates (Average prices in EUR / 100 l without VAT) can only be viewed as broad anchor points for the absolute price level.

Source: German Federal Statistical Office, Wiesbaden

"With the weekly publication of diesel prices, the Federal Statistical Office is helping the logistics industry enormously. This was a central demand of the BGL, which has now been implemented largely at the instigation of BMDV State Secretary Oliver Luksic. This means that the massive diesel price increases can be passed on to the customers more quickly." - stated the BGL board spokesman Prof. Dr. Dirk Engelhardt.

How IMPARGO can help you manage the diesel floater

Considering the above mentioned on how to determine your cost share of diesel cost to overall costs, our software is the transportation management platform (TMP) that enables both shippers and carriers the calculation of their share of fuel costs and on top of that, the calculation of their freight prices through the IMPARGO transport cost calculator for free by updating the truck and driver costs profiles accordingly.

Get in touch with us now in order to receive free personal consulting on your company's requirements and technical implementation.

What is diesel floater?

Why is a diesel floating so important?