Fuel Surcharge versus Fuel Costs - Get It Right Or You Are Out Of Business!

Implications: The profit-loss math is pretty simple. When fuel was $1.20 per gallon where most fuel surcharge kicked in, the cost per mile was $0.20 at 6 miles per gallon. Today at about $4.20 as noted in the article, the cost is $0.70 per mile. The difference is $0.50 per mile. Add that to a $1.25 per mile base freight rate and we know why are products cost more. Show me a trucking company that had profit margin of $0.50 per mile that could absorb such a fuel cost price swing - and I’d be safe in saying you are showing me a liar ($0.10 per mile profits is exceptional). There are things we can use in assessing businesses from this aspect.

Analysis: I don’t like politicians involved in much of anything, however this is one area that needs some attention. There are really two sides of the equation to address here, the revenue side (fuel surcharges) and the expense side (operations and actual fuel costs). I lean toward the approach of requiring full disclosure / transparency of freight rates and surcharges and away from operational mandates (we have enough of them today).

We are all familiar with airline surcharges today when we buy tickets. We have the base rate plus all of the TSA et al charges added on. Airlines love it because it fixes (and explains) those extra costs, making their fares look more attractive. When they try to raise base rates, they often get in trouble due to competitive problems. For example, stating they are adding fuel surcharge to fares (say a normal seat get 50 MPG at $3.50 per gallon Jet A = $0.07 per mile). For a 500 mile trip this is $35 fuel cost for our seat they are trying to offset part of. So they try to stick on $20 on our $60 leisure fare and we don’t go. Not getting these costs offset tips over unhealthy airline businesses. Sound a little like trucking?

Most of the problems today with fuel surcharge involve brokered freight from traditional brokers, fleets that broker freight and logistics providers. It stems in part from ignorance, but also greed and other things. To get surcharge, it needs to be negotiated, calculated properly, billed properly and then paid. We are receiving a couple thousand hits a day at our site on surcharge, along with hundreds of queries per week with specific problems. The stories are almost unbelievable!

Most brokers pay on a percentage of freight rates (85% or less), so paying a percent of fuel surcharge greatly benefits the broker. In such cases when fuel surcharge is asked about, truckers are often told it is in the rate. The proposed TRUCC rules should state that fuel surcharge should be noted separately and that full amount be passed on to the party buying the fuel. One can then readily assess whether the numbers are fair - then take it (or leave it) based on that. We run a lot of data on broker freight - and most DO NOT separate out fuel surcharge.

The biggest thing one can do on the expense side is slowing down. The old rule of slowing down 10 MPH = 1MPG works well. Most fuel surcharge today is being calculated at 6 MPG, which is basically an 80,000 pound truck running 60 MPH. A half loaded more typically loaded truck gets 6 MPG running about 68 MPH. Mandating speeds won’t do much, as trucks (and even cars) have already slowed down. We are currently running fleet and actual on-road speed trend surveys - and they have slowed. The 62 v. 75 MPH planning argument does not hold water, as the average utilization math tells the real story - truckers can log up to 3,500 miles per week wile the national fleet is running 2,300 mile - and that means running fast isn’t needed for logging (or for actual daily minutes gained by running fast).

As others have stated, it is an education process. The big carriers do get it - and shippers are getting smarter, too - so we should work on both sides of the equation regardless. Transparency would help!