WILL IT NEVER GO AWAY
It’s on virtually every freight bill you pay regardless of mode. You pay for it and take it for granted. It rises and falls impacting your budget and freight expense. You think there is little that you can do about it. Yes, we are talking about the ever present fuel surcharge that your carriers add to your freight bills.
Way back in 1973 there was a sudden spike in the cost of oil as a result of the Arab oil embargo and the Organization of the Petroleum Exporting Countries (OPEC) oil crisis. Carrier margins which are typically razor thin to begin with, needed to be supported by what was then considered a temporary measure to ensure the viability of our transportation network.
At that time, Congress granted authority to the Interstate Commerce Commission (ICC) to allow motor carriers the ability to bypass the cumbersome rate approval process and impose an emergency fuel surcharge by filing a surcharge tariff with one day’s notice. This laid the groundwork that allowed carriers to enact fuel surcharges and develop their own formulas. Typically, Parcel and LTL carriers use a percentage-based fuel surcharge formulas. Mileage surcharge formulas are more prevalent with TL carriers, although some do apply percentage based surcharges.
The objective that seemed reasonable at the time; to ensure carriers were fairly compensated for the significant increase in fuel which they could not control. However, fast forward to the real world that we do business in today. The formulas used today may take into consideration the miles per gallon (MPG) consumed by the carriers’ fleet, regions of the country where the freight is transported as well as caps and floors.
Shippers need to recognize that:
- Fuel surcharges can be negotiated
- Most carriers purchase their fuel in bulk and do not pay the price shown at the pump or those published by the DOE
- The MPG of most fleets is 6 to 7 not the 5 MPG that carriers often apply
- Fuel is their second largest component on their freight invoice today
- Fuel is a profit center for most carriers
- They can publish their own fuel surcharge schedule to measure pricing on comparative basis
Until there is a major disruptive event, such as the practical use of electric trucks, we do not see the fuel surcharge going away. That is why we strongly recommend that shippers become more proactive and learn more about the actions that they should be taking.
Data2Logistics has a dedicated “Professional Consulting Services” team that can help you identify opportunities across all modes. We provide various services such as data metrics/analytics, market studies, carrier strategy/negotiation, etc. For more information, please contact Dan Leva at [email protected] or 973-222-5882.