Fuel for FedEx contractors: IFTA, the fuel supplement and the price that really counts

Fuel is the biggest bill a FedEx contractor pays that changes every single day. Most owners watch the pump price, pick the cheapest sign, and hope the settlement works out. But three things decide what a gallon really costs you, and the pump price is only one of them: IFTA, the FedEx fuel supplement, and your trucks' miles per gallon. Get the three straight and you stop paying for fuel twice.

This guide walks through each one with worked numbers. The tax rates and prices in the examples are made up to keep the math easy; your own settlements and your Schedule C have the real ones.

1. IFTA: the tax follows your miles, not your receipts

Every gallon of diesel you buy includes state fuel tax for the state you bought it in. But you burn that gallon wherever the truck goes. IFTA, the International Fuel Tax Agreement, squares that up once a quarter: you report the miles each truck ran in every state and the gallons you bought in every state, and each state ends up with the tax on the fuel you burned on its roads.

Example. One truck, one week, 2,100 miles at 7 miles per gallon, so it burns 300 gallons. Half the miles are in State A (tax 30 cents a gallon), half in State B (tax 60 cents a gallon).

• Fuel burned in each state: 150 gallons in A, 150 gallons in B.
• Tax the states are owed: A gets 150 × $0.30 = $45, B gets 150 × $0.60 = $90. Total: $135.
• If you bought all 300 gallons in A, you paid $90 of tax at the pump. IFTA gives you $45 back from A and bills you $90 for B. Net: $135.
• If you bought all 300 gallons in B, you paid $180 at the pump. IFTA gives you $90 back from B and bills you $45 for A. Net: $135.

Same truck, same miles, same tax. Where you drove decides your fuel tax; where you filled up only decides who holds your money until the quarter is filed. So a stop that is cheaper only because its state tax is lower is not really cheaper: you pay the difference later on your IFTA return.

That also means the tax part of a pump price is not the part to shop on. What you can actually save on is the fuel itself: the price before tax.

2. The FedEx fuel supplement is paid by the mile

FedEx pays you for the miles, and on top of that a fuel supplement that rises and falls with diesel prices, so a price spike does not wipe you out. It helps to know how it is worked out, because it is not simply "what you spent on fuel":

• Each week FedEx takes the fuel receipts for each truck: fill-ups on the FedEx card at FedEx stations, and fill-ups on your own cards at retail stops. You can see that list on your settlement, under the fuel receipts used for the variable fuel/mileage component.
• It works out an average price per gallon for the truck. For fuel bought at a FedEx station that is the price you paid. For fuel bought at a retail stop it is not the pump price: FedEx prices it from OPIS, a wholesale index for that area, plus tax.
• That average price falls in a band on the table in your Schedule C, and each band pays a set number of cents per mile.
• The cents per mile times the truck's miles for the week is the supplement on your settlement.

What that means in real numbers. We compared the two prices for every fill-up in a real FedEx settlement. At FedEx stations, the price FedEx used matched what the contractor paid, to the cent. At two retail truck stops, the price FedEx used was 42 and 48 cents a gallon lower than what was actually paid at the pump. On a 150-gallon fill that is $63 to $72 the supplement never sees, on one stop.

Two things follow from how it works:

1. Paying more at the pump does not earn a bigger supplement. Retail fuel is priced at the index, whatever you paid.
2. The supplement assumes a fuel economy. The Schedule C table is built on an assumed miles per gallon. A truck that does better than that assumption keeps the difference; a truck that does worse pays it.

3. The number that counts: your effective price per gallon

Put the first two sections together and the question at the pump changes. It is not "which sign is lower?" but "what does this gallon cost me once IFTA and the supplement are done with it?"

Example. Two stops on the same lane:

• Stop 1, in a state with a 30-cent tax: $5.50 a gallon on the sign. Take out the tax that IFTA settles anyway and the fuel costs $5.20.
• Stop 2, in a state with a 55-cent tax: $5.70 a gallon on the sign. Take out its tax and the fuel costs $5.15.

Stop 2 looks 20 cents dearer and is 5 cents cheaper. It can do better still, because a higher tax in the price can lift the truck's average into a higher supplement band. On 300 gallons a week that 5 cents alone is $15 a week and $780 a year, per truck, before any supplement difference.

The lesson is not "always buy in high-tax states"; it is to compare stops without the tax, and to know which stops along each lane come out best once you do.

4. Where to fill up

A few rules that hold up well:

• FedEx station fuel is usually the best deal when the truck can get to it without costing hours. Its price is what the supplement uses, so nothing is lost between the pump and the settlement.
• At retail stops, the full pump price is money the supplement will not cover. The gap between the pump and the index is the truck stop's margin. A fleet card with negotiated discounts at the chains on your lanes closes some of that gap.
• Plan the stops. Give each lane one or two preferred stops and tell the drivers: "near X, fuel there, on this card; FedEx station first when you pass one." A written list beats whatever sign a driver sees when the light comes on.
• Keep DEF and fluids apart in your head. They show up on the settlement as deductions next to the fuel, but they are not fuel and should not be in your price per gallon.

5. The costly mistakes are clerical

The most expensive fuel problems are not at the pump. They are in the paperwork:

• A fuel card tied to the wrong truck. If FedEx cannot match a truck's fill-ups to its miles, it cannot price that truck's fuel, and the supplement for that truck can come out short or not at all until it is fixed. Check the card-to-truck list every time a truck is added, retired, swapped for a rental, or renumbered.
• Truck numbers that do not match. The number on the ELD, on the fuel card and on the settlement should be the same.
• Nobody reading the supplement lines. A missing supplement is easy to miss in a long settlement. Every truck that ran should have a fuel/mileage line every week; check that it does.
• Fuel on other cards left out of IFTA. The FedEx card's purchases are on the settlement for everyone to see. Gallons bought on your own cards count just as much on your IFTA return, and if they are not reported you pay tax on them twice.

6. Miles per gallon: the lever under everything

Everything above is about the price of a gallon. Miles per gallon is about how many gallons you need, and it usually moves more money.

Example. A truck running 2,100 miles a week, diesel at $5.75:

• At 7.5 mpg it burns 280 gallons a week: $1,610.
• At 6.5 mpg it burns 323 gallons: $1,858.
• At 5.5 mpg it burns 382 gallons: $2,195.

The gap between 7.5 and 5.5 mpg is about $585 a week, which is about $30,000 a year for one truck at those miles. Because the supplement assumes a fixed fuel economy, all of that difference is yours to keep or yours to lose. It is why an old, paid-off truck that gets bad mileage can cost more to run than a newer one with a payment, and why speed, idling and maintenance habits pay back quickly.

What to take away

1. IFTA taxes the fuel you burn where you drive; buying in a low-tax state only changes who holds the money until the quarter.
2. The FedEx fuel supplement is paid per mile, from an average price that uses the index for retail fuel, not your pump price.
3. Compare stops on the price without tax; a higher sign in a higher-tax state can be the cheaper gallon.
4. Use FedEx station fuel when it is practical, and a discount card at planned retail stops when it is not.
5. Keep cards matched to trucks and read the supplement line every week.
6. Every tenth of a mile per gallon is money, on every truck, every day.

How Mileage Reports helps

Most of this is only as good as the numbers behind it. Mileage Reports reads your FedEx settlements and your trucks' miles and lays it out for you:

• Fuel purchases: every fill-up, truck by truck, on the FedEx card and on your own cards (priced as FedEx priced them, and marked), with DEF and fluids kept apart.
• Fuel efficiency: miles per gallon for each truck, on the odometer's miles and on the paid miles, and what you pay a gallon by chain and by state.
• IFTA: miles by state from each truck's ELD and gallons by state from the settlements, all cards included, ready each quarter.
• Settlement Analyzer and reports: what every truck and route made after fuel, week by week.

Want to see it on your own numbers? Upload a few settlements and look around, or book a short demo and we will walk you through your own fuel.