FAF explained: a fuel adjustment factor without the monthly argument
Diesel moves. Your cartage rates can't move with it every week — clients want a stable rate card, and you don't want to re-quote every job each time the pump price jumps. The fuel adjustment factor (FAF) is the industry's answer: a percentage surcharge on the cartage line that floats with fuel, applied on top of a rate that stays put.
The basic mechanics
A FAF formula needs three things:
- A base fuel price — the diesel price your rates were built on.
- A reference index — a published diesel price you and your client both trust, checked on a fixed schedule (usually monthly).
- A fuel share — the portion of your operating cost that is fuel (commonly 20–35% for tipper work, depending on the running).
Then each month: FAF % = (current index − base price) ÷ base price × fuel share. If diesel is up 15% on your base and fuel is 30% of your cost, FAF is 4.5% that month. Diesel falls below base? FAF goes negative and the client sees the credit — that's what makes the mechanism fair, and what makes clients accept it.
Where operators get burned
- Inconsistent application. FAF applied to some clients and forgotten on others, or applied to the material line when it should only touch cartage. Every inconsistency is a future dispute.
- Stale bases. A base price set three years ago makes the surcharge permanently large and permanently argued about. Re-base when you re-rate.
- Manual maths. If FAF is worked out in someone's head at invoice time, it's wrong somewhere every month. The formula is simple; the discipline is the hard part.
Make it automatic, make it visible
The fix is structural: set the formula once — base, index, fuel share, per-client overrides where you've agreed something different — and let the system apply it to every invoice line automatically, shown as its own line item. When the client can see the index, the formula and the line, the monthly FAF conversation mostly stops happening.
CartageCore's billing engine carries a configurable FAF formula against your diesel index and applies it per client, per invoice run — calculated, itemised on the Xero draft, and consistent every month.