Opinion | When Surcharges Become Profit Centres, Logistics Has a Problem

Estimated reading time: 10 minutes

By: Peter Bouwhuis

There is an uncomfortable question hanging over the transport and logistics industry.

When does a legitimate surcharge stop recovering a cost and start becoming a profit centre?

That question became particularly relevant after Reuters reported that Union Pacific collected $91.1 million more in fuel surcharges than it spent on fuel during the second quarter of 2026.

For people working in freight, this is more than another story about corporate profits. It goes directly to something the industry deals with every day: fuel surcharges, bunker adjustments, congestion fees, security charges, war risk premiums, peak season surcharges and countless other additions to the basic freight rate.

Most have perfectly legitimate reasons for existing.

The problem begins when the reason disappears but the money does not.

Union Pacific’s numbers deserve attention because U.S. railroads provide something rarely available elsewhere in transport: regulatory reporting of both fuel expenses and fuel surcharge revenue.

That makes it possible to compare what customers paid specifically through fuel surcharges with what the railroad actually spent on fuel.

In the second quarter, Union Pacific’s fuel surcharge revenue exceeded its fuel expense by $91.1 million.

Union Pacific also said fuel surcharges contributed 14 cents per share to second quarter earnings, equivalent to roughly $83.2 million based on shares outstanding.

That changes the nature of the discussion.

Nobody in logistics seriously argues that carriers should absorb every increase in fuel prices. Whether operating a locomotive, containership, truck, tug or heavy transport combination, fuel represents a substantial operating expense.

If diesel jumps dramatically, customers should expect transport prices to respond.

But a surcharge supposedly designed to compensate for higher fuel costs should surely maintain some relationship with those costs.

That is where Union Pacific’s numbers become interesting.

Norfolk Southern recorded a second quarter surplus of just $3.6 million between fuel surcharge revenue and fuel expense. CSX recorded $8.4 million.

Meanwhile, BNSF, Union Pacific’s major competitor in the western United States, collected $658.1 million less in fuel surcharges than it spent on fuel during the first six months of 2026.

Union Pacific, by contrast, collected $56.4 million more than its fuel costs over the same six month period.

Same country. Same broad market. Same fuel shock.

Very different outcome.

Anyone buying transport services will recognise the mechanism.

Something happens and another line appears on the invoice.

• Fuel surcharge.
• Emergency bunker surcharge.
• War risk surcharge.
• Congestion surcharge.
• Peak season surcharge.
• Security surcharge.
• Equipment imbalance charge.
• Low water surcharge.

The individual charge may be completely justified. In many cases it absolutely is.

The Rhine provides a good example. When water levels fall, inland vessels cannot load to normal capacity. A vessel that normally carries a full cargo may suddenly carry only a fraction of it. The economics of the voyage change immediately.

Charging more per tonne under those circumstances makes commercial sense.

The same applies when a ship must divert thousands of nautical miles around a conflict zone. More fuel is burned. More crew time is required. The vessel completes fewer voyages annually. Insurance costs can increase.

Someone has to pay for that.

But there is a difference between recovering an extraordinary cost and discovering an extraordinary margin.

That distinction deserves far more attention throughout logistics.

The difficulty is that transport pricing moves quickly when costs rise and considerably more slowly when circumstances improve.

That is hardly unique to logistics, but freight markets provide plenty of examples.

A crisis creates an immediate reason to increase prices.

Commercial departments can react within days. Sometimes within hours.

Removing the surcharge can become a much longer conversation.

There is always another explanation. Fuel prices are still volatile. Insurance remains uncertain. Equipment remains tight. repositioning costs have increased. Labour costs are higher. The market remains disrupted.

Each argument can be individually reasonable.

Taken together, however, they can create a pricing system where temporary disruption gradually becomes embedded in the rate structure.

I sometimes think surcharges in logistics resemble guests who arrive for dinner and somehow end up living in the spare bedroom.

Getting them in is easy.

Getting them out can prove surprisingly difficult.

Union Pacific demonstrates why transparency is so important.

Railroads in the United States report fuel expenses and fuel surcharge revenues to the Surface Transportation Board. That reporting allows shippers, regulators and investors to see whether the two remain reasonably connected.

Try doing the same exercise across much of international freight.

Take a bunker surcharge on an ocean freight invoice and determine exactly how closely it corresponds with the carrier’s incremental fuel expense.

Then try a congestion surcharge.

Or a war risk surcharge.

Or an equipment imbalance surcharge.

Customers generally receive the formula or the charge. They rarely receive enough information to establish the carrier’s actual incremental cost.

That does not mean the charges are excessive.

It means customers frequently cannot determine whether they are excessive.

That is an important distinction.

The current geopolitical situation makes this particularly relevant.

The U.S. and Israeli war with Iran has affected energy markets, shipping routes, insurance costs and fuel prices.

Transport companies genuinely face additional expenses.

Those expenses must eventually enter freight rates.

But extraordinary circumstances also create opportunities for pricing that would be much harder to introduce during normal market conditions.

When everybody knows fuel has become more expensive, few customers question a fuel surcharge increase.

When ships are avoiding dangerous waters, few procurement managers are going to argue that war risk insurance has not increased.

The commercial environment itself provides the justification.

That makes it even more important that the industry distinguishes between cost recovery and margin expansion.

The container shipping industry demonstrated during the pandemic how quickly the economics of freight can change when capacity becomes scarce.

Freight rates increased several times over on major trade lanes. Container carriers subsequently reported profits that would have been almost unimaginable before the pandemic.

There was nothing mysterious about the basic economics.

Demand exceeded available capacity.

Shippers competed for space.

Carriers charged what the market would bear.

That is capitalism.

But the experience also demonstrated something logistics customers should never forget: transport prices are not determined solely by transport costs.

They are determined by bargaining power.

When capacity is abundant, the shipper has leverage.

When capacity is scarce, the carrier has leverage.

That becomes particularly important when markets consolidate.

Union Pacific is seeking regulatory approval for its proposed $85 billion acquisition of Norfolk Southern.

The transaction would create the first railroad spanning the continental United States.

Union Pacific estimates the combined company would have around 36% market share based on carloads.

Opponents argue that the actual competitive consequences could be considerably greater and that reduced competition could ultimately increase freight costs.

BNSF has warned that the combination could give Union Pacific the ability to extend what it describes as the railroad’s high price strategies across a much larger network.

That argument now deserves to be considered alongside the fuel surcharge figures.

A company seeking permission for one of the biggest consolidations in U.S. transportation has simultaneously demonstrated that a surcharge associated with a specific operating expense can generate a substantial positive earnings contribution.

That does not prove the merger should be rejected.

It does give regulators another reason to look very carefully at pricing power.

This matters to freight forwarders and shippers because competition is often the only effective discipline on transport pricing.

A shipper faced with an unacceptable rate needs an alternative.

Another railroad.

Another carrier.

Another terminal.

Another trucking company.

Another routing.

Without that alternative, negotiations become rather theoretical.

This is particularly important for industries where infrastructure determines choice.

A factory connected to two competing railroads has bargaining power.

A factory effectively captive to one railroad has considerably less.

A port served by multiple liner services can negotiate differently from a port dependent on one dominant operator.

The same applies throughout the logistics chain.

Market concentration is therefore not an abstract competition law issue. It is a freight procurement issue.

Governments have a difficult balance to maintain.

Transport companies need scale. Railroads require enormous infrastructure investment. Shipping companies need capital to build increasingly expensive vessels. Terminals need billions for automation and expansion.

Consolidation can create genuine efficiencies.

But governments and regulators should be extremely cautious about assuming that every efficiency achieved through consolidation will automatically be passed to customers.

History suggests otherwise.

If a merger reduces operating costs by $1 billion, who receives that billion?

The shipper through lower rates?

Employees through higher wages?

Shareholders through higher returns?

Or some combination?

That is the question regulators should be asking.

Government regulation is only part of the answer.

Procurement departments, freight forwarders and cargo owners should become more demanding about surcharge mechanisms.

If a fuel surcharge rises automatically when an index increases, does it fall automatically when that index decreases?

What is the lag?

What baseline is being used?

Does the surcharge reflect actual consumption?

Is there a ceiling?

Is the calculation independently verifiable?

When an emergency surcharge is introduced, what event triggers its removal?

These are not unreasonable questions.

They are basic commercial questions.

If the answer is that a surcharge can rise according to a formula but its removal depends on management discretion, the customer should probably read that formula again.

Consumers sit at the end of this chain, although that part of the story is often overstated.

A $1,000 increase in freight costs does not automatically mean consumers pay exactly $1,000 more. Manufacturers, importers, wholesalers, retailers and logistics providers may each absorb part of it depending on contracts and market conditions.

But transport costs ultimately influence the cost of doing business.

Higher rail rates affect grain, chemicals, steel, automobiles and manufactured goods.

Higher container rates affect importers.

Higher trucking costs affect distribution.

Higher project logistics costs affect infrastructure and industrial investment.

The effect travels through the supply chain.

The important point for this industry, however, comes earlier.

Before asking what consumers eventually pay, shippers should be asking whether the freight charge itself is justified.

Transport companies must make money.

Without adequate returns there will be no new locomotives, vessels, trucks, terminals, warehouses or logistics technology.

The industry needs profitable companies.

But profitability and transparency are not opposites.

A carrier should be able to earn an attractive return while explaining why an extraordinary charge exists.

And when that extraordinary cost disappears, customers should reasonably expect the charge associated with it to disappear as well.

That is why the Union Pacific numbers matter far beyond American rail freight.

They provide something the wider logistics industry rarely gets: a glimpse behind the surcharge.

And what that glimpse shows should make shippers, forwarders and regulators pay attention.

Union Pacific collected $91.1 million more in fuel surcharges than it spent on fuel during one quarter.

Perhaps there are perfectly reasonable commercial explanations for that.

But there is a principle here that applies across rail, road, ocean shipping, air freight, ports and project logistics.

When a company calls something a surcharge, customers are entitled to believe that it relates to an identifiable additional cost.

Otherwise, call it what it really is.

Part of the freight rate.