In the logistics and transportation industry, fuel costs are a significant factor that affects the overall cost of shipping goods. To account for this, many carriers use a fuel adjustment factor (FAF) to help cover the cost of fuel. In this blog post, we'll discuss what FAF is, how it's calculated, and why it's used by the industry.
What is FAF?
FAF is a surcharge that carriers add to their shipping rates to account for fluctuations in fuel prices. The purpose of FAF is to ensure that carriers can cover their fuel costs, which can vary depending on changes in the market.
How is FAF Calculated?
The calculation of FAF varies depending on the carrier and the specific route. Typically, FAF is calculated as a percentage of the base rate for transport, and this percentage can vary based on the cost of fuel. When fuel prices are high, the FAF percentage will increase, and when fuel prices are low, the FAF percentage will decrease.
Why is FAF Used by the Industry?
FAF is used by the industry to ensure that carriers can cover their fuel costs, which can be significant. By using FAF, carriers can adjust their rates to reflect changes in fuel prices, which helps to ensure that they can continue to operate profitably. Additionally, FAF helps to ensure that customers are charged a fair price for transport or shipping, as carriers can adjust their rates to reflect the actual cost of fuel.
So to answer the question:
FAF is a surcharge that carriers add to their transport or shipping rates to account for fluctuations in fuel prices. The calculation of FAF varies depending on the carrier and the specific route, but typically it is calculated as a percentage of the base rate for shipping. By using FAF, carriers can ensure that they can cover their fuel costs and adjust their rates to reflect changes in fuel prices.
This allows the total price for the service to move both up and down which ultimately helps to ensure that customers are charged a fair price.
If you have any questions about FAF or would like to learn more about how it's used at McLeod get in touch and we will be happy to explain.