Fuel levies were once a minor consideration. This year, they have become a significant margin issue.

For years, the fuel levy on freight invoices was largely overlooked, remaining steady at a low-to-mid teens percentage and changing only slightly each quarter. This changed rapidly in 2026.

What happened to fuel this year

In late February, conflict in the Middle East closed the Strait of Hormuz, a key shipping route for nearly one-fifth of the world’s oil. This triggered the largest recorded oil supply disruption. Brent crude prices fluctuated significantly, ranging from approximately 72 to 118 US dollars per barrel throughout the first half of the year.

Australia experienced the impact immediately. In early March, average wholesale diesel prices rose by about 30 percent across major cities. The national average increased from just under 180 cents per litre before the conflict to nearly 295 cents by the end of March. The Federal Government halved the diesel excise from 1 April for three months, preventing pump prices from hitting approximately 340 cents.

This relief ended in June, resulting in another cost increase. Prices remain high, with similar conditions expected into 2027.

For freight operators, this volatility is reflected directly in the fuel levy.

Why carriers went weekly

Fuel levies are designed to adjust with fuel prices, but existing processes were intended for more stable conditions. Most carriers previously reviewed and updated levies monthly, which was sufficient when prices changed gradually. This approach is inadequate when wholesale prices can shift by 30 percent in a single week.

In March, many carriers transitioned from monthly to weekly levy reviews. They cited that weekly reviews help moderate ups and downs and prevent significant monthly adjustments that could either overcharge customers or undercompensate carriers. Some carriers adopted a fortnightly cycle. As a result, the levy, once a minor consideration, can now change while goods are still in transit.

Understanding how the levy is calculated is important. Typically, a carrier’s levy is based on the average terminal gate price of diesel, as reported by the Australian Institute of Petroleum, for each city over a specific period. If this average exceeds the carrier’s base benchmark, the difference is added as a surcharge to the fuel component of your freight. The levy is applied according to the consignment’s pick-up date, not the booking or invoice date. Since rates are set by city, a carrier may apply different levies for Perth and Sydney in the same week. At this year’s peak, some interstate levies exceeded 40 or even 50 percent, compared to the usual low teens.

Why so many businesses started passing it on

Most businesses can absorb a levy in the low teens, but a weekly levy of 40 or 50 percent is unsustainable. This year, many businesses that previously absorbed fuel costs began passing them on to their customers to protect margins.

The most effective approaches shared several features. The surcharge was listed as a separate, clearly labeled line item, allowing customers to track changes as fuel prices fluctuated. Reviews were conducted on a set schedule, aligned with the carrier’s cycle. Clear explanations accompanied the surcharge, as transparency is better received than unexplained increases. For businesses selling on a delivered or landed-cost basis, passing on the surcharge became necessary. When freight costs fluctuate significantly, businesses must either pass them through or accept reduced margins.

So why does managing the levy properly matter so much?

This is where practical issues occur, and where unnoticed costs can accumulate.
When the fuel levy is small and stable, minor errors have little impact. However, when the levy is large, changes weekly, and varies by carrier, city, and pick-up date, two costly issues can arise.

The first is that you overpay. If the levy applied to your freight doesn’t match the correct rate for the week the goods were picked up, you carry the difference, and on a surcharge past 40 per cent the difference is not small. It is the same leak that makes freight invoice reconciliation worth doing, only magnified.

The second risk is under-recovery. If your business model involves passing freight costs to customers, your recovery relies on using the correct levy. Charging customers based on last month’s levy while carriers bill you at this week’s higher rate results in a loss on every consignment. Over a busy week, these losses might considerably erode margins and may go unnoticed until month-end reconciliation, if they are identified at all.

Both issues stem from whether the correct, current levy for each carrier is applied automatically by pick-up date and reflected in your charges. Managing this manually across multiple carriers, each having its own weekly cycle and city benchmarks, is nearly impossible to do accurately. When managed within your freight system, accurate pricing for every consignment becomes routine.

The short of it

Fuel levies have shifted from a stable detail to one of the most volatile components on a freight invoice, causing a move from monthly to weekly adjustments. This trend is expected to continue. For high-volume shippers, and especially those recovering freight costs from customers, it is essential to calculate the levy accurately, as even small errors can greatly affect margins.

This is why we treat fuel levies as an integral part of pricing in Sentaro, rather than as a static field. Current levies are applied per carrier by pick-up date and carried through to your on-charges, making sure that what you pay and what you recover stay in sync, even as rates fluctuate.