.The trucking industry—spanning from the US to Europe, and including India—is currently facing a major crisis. Diesel prices are at record highs, yet many trucking companies are unable to pass these costs on to their customers. The reason lies in long-term, fixed-rate contracts signed years ago. Major trucking companies in both the US and India have revealed that these contracts are causing them monthly losses amounting to hundreds of thousands of dollars.
What is the full story?
Essentially, there are two types of contracts in the trucking industry: the spot market and dedicated or long-term contracts. In the spot market, rates for each trip are determined daily based on diesel prices and supply-demand dynamics. In contrast, major retailers like Walmart, Amazon, Reliance Retail, and D-Mart enter into fixed-rate contracts spanning one to three years.
During 2023–24, when diesel was cheaper and the freight market was sluggish, trucking companies signed 2–3 year contracts at very low margins to remain competitive. At that time, diesel cost $3.20 per gallon in the US and ₹89 per liter in India. Companies assumed that even if rates rose slightly, they could manage the impact.
However, the situation shifted drastically by 2026. Diesel prices have now reached $5.15 per gallon in the US and between ₹97 and ₹102 per liter in India—an increase of 40–60% over two years.
Executives from major firms—such as the US-based Knight-Swift and India’s TCI Express—have stated that 70% of their contracts are still locked in at the older rates from 2024.
What did the company say? The CFO of one of America's top five trucking companies stated on condition of anonymity, "Our fuel surcharge mechanism has failed. Our contracts include a fuel surcharge cap—meaning that even if diesel prices exceed $4 per gallon, we can only charge the customer based on a $4 rate. We are now losing 22 cents for every mile driven. Our fleet of 1,200 trucks is consuming $15,000 worth of extra diesel daily—a cost we have to bear ourselves."
A manager at a major Indian logistics company said, "We signed a three-year contract with a large FMCG company in 2024 at a rate of ₹32 per kilometer. At the time, diesel was priced at ₹89, and we were making a profit of ₹4 per kilometer. Today, diesel is ₹99, and our operating cost has risen to ₹36 per kilometer. This translates to a loss of ₹4 for every kilometer driven—a direct loss of ₹12 lakh per month based on a volume of 3 lakh kilometers."
What is a fuel surcharge, and why is the mechanism failing?
Typically, every contract consists of two components: the base rate and the fuel surcharge. While the base rate remains fixed, the fuel surcharge fluctuates in line with diesel prices.
However, to attract clients, many companies introduced caps or time lags into their fuel surcharge agreements. For instance, the diesel rate might be determined based on the previous month's average, or the surcharge might be restricted so it does not increase by more than 10%. While this formula works when diesel prices rise gradually, it leads to massive losses for the company when prices surge—such as a 30% increase over three months.
According to data from the American Trucking Associations (ATA), diesel costs accounted for 28% of trucking companies' operating expenses in June 2026, up from 19% in 2023.
Who is being affected by this? 1. **Small companies are shutting down:** In the US, 3,200 small trucking companies closed during the first half of 2026. Similarly, in India, the All India Motor Transport Congress reports that 15% of small operators have sold their trucks over the past eight months.
2. Impact on driver salaries: To mitigate losses, companies are cutting driver bonuses and per-mile pay, which is further exacerbating the driver shortage.
3. Pressure on the supply chain: Companies are seeking to terminate existing contracts, leading to rising disputes with retailers. Many firms have attempted to invoke *force majeure* clauses.
Experts believe the industry needs to adopt three key changes:
First, Index-based pricing: Linking diesel prices directly to the weekly indices of the DOE (US) or IOCL (India) without any price caps.
Second, Short-term contracts:** Moving from three-year agreements to six-month or one-year contracts that include quarterly rate revisions.
Third, Investment in fuel efficiency: Many major companies are shifting to CNG, LNG, and electric trucks. Firms like TCI and VRL have added CNG trucks to their fleets, resulting in a 25% reduction in fuel costs.
Long-term contracts, once considered a guarantee of stability for trucking companies, have now become their greatest vulnerability. Diesel prices are not merely a function of commodity markets; they are tied to geopolitics, refinery capacity, and the transition to green energy. Companies still clinging to the old fixed-rate model risk incurring massive losses over the next 12 months. The industry must shift toward flexible pricing; otherwise, the number of trucks on the road will dwindle further, directly impacting inflation and the common man's wallet.
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