LoadTrek will be in Houston August 26 - September 1

Contact us to schedule a meeting, training session, or consultation during our Houston training sessions August 26 - September 1. 

Fuel Surcharge Recovery

The below article was provided to us by our friends at McGee and Associates.  Fuel surcharges are a way of life in the freight business.  If you are not breaking out fuel surcharges in your LoadTrek billing plane - you'll now know why it's such a good idea.

A fuel surcharge is a fee that can be added to the freight charges that allows a carrier to be reimbursed for incremental or excessive fuel costs. While most companies understand the mechanics of a fuel surcharge (FSC) and the need for incremental fuel expense recovery, few carriers quantitatively measure the effectiveness of their FSC programs. This article is about how to measure FSC recovery effectiveness.

History and Purpose of Fuel Surcharge

FSC first appeared in response to the 1973 oil crisis with the goal of reimbursing carriers for the unusual spikes in oil prices. On Feb. 7, 1974, the Interstate Commerce Commission (ICC) promulgated Special Permission No. 74-2525, denominated “Emergency Fuel Surcharge for Line Haul Transportation Charges and Other Charges Motor Common Carriers.” Paragraph one of that order authorized carriers to increase their freight rates by surcharge, up to six percent (at the time). Fuel surcharges became a permanent part of carrier pricing again in the mid-90s when prices reached a high around $1.15 per gallon; $1.10 to $1.20 became the baseline price for most carriers in establishing their fuel surcharge programs at the time and remains basically unchanged today.

In general, little has changed in the surcharge calculation mechanics. Each Monday, the Department of Energy (DOE) collects data from a representative group of approximately 350 retail diesel outlets then issues the national average diesel price for that week. Most carriers use the national average or components of it to calculate their fuel surcharge. The surcharges are still generally calculated using one or two popular methods (i.e., cent per mile and/or percent of line haul rates). Despite alternative approaches, such as the Fuel Surcharge Index and computation aids like the phone app, PocketFuelCal, the basic formula used by the most carriers is:

FSC per mile = ((DOE self-serve diesel fuel price average) - (carrier’s baseline price)) / (miles per gallon (MPG))

The effectiveness of the surcharge to meet its intended objectives varies widely from carrier-to-carrier primarily due to calculation nuances and the inaccuracies inherent in using weekly averages. Many carriers have known for a number of years that this effectiveness can and must be managed. There are several ways to approach the analysis of fuel expense recovery.

One approach is to evaluate total fuel expense compared to total revenue, specifically and theoretically related to fuel. Focusing on the effectiveness of the surcharge, however, requires a comparison of the incremental fuel surcharge revenue with incremental fuel expense. A primary management metric developed to monitor the FSC effectiveness is the FSC Recovery Percentage, or simply the Recovery %.

The Recovery % may be calculated several different ways, but the objective is to compare the incremental shipper

revenue associated with fuel to the carrier’s incremental fuel cost. One formula used to calculate the Recovery % is as follows:

Recovery % = Incremental fuel expense / incremental fuel related revenue

Where:

• Incremental fuel expense = ((DOE self-serve diesel fuel price average) - (carrier’s baseline price)) multiplied by gallons purchased and consumed during the period

• Incremental fuel revenue = fuel surcharge revenue + base rate revenue related to abnormally high fuel prices

Like the basic fuel surcharge, the recovery formula is simple, but the “devil is in the details.” Typically, the carrier baseline price is the starting point for its fuel surcharge table of $1.10 to $1.20. As a practical matter, however, most carriers will have a number of shipper required surcharge programs with different starting points. It is also difficult to match or determine the exact number of gallons purchased and used to generate the fuel surcharge revenue in a period. Which DOE price to use also presents choices.

Further complicating the computation is the assertion that some base freight rates include an incremental fuel component. Despite the analytical imperfections, a consistently applied methodology will provide a meaningful tool to focus management’s attention on the components affecting any differential. Focus can lead to accountability, which provides the incentive to improve results. With typical recovery percentages of 65 percent to 75 percent, it is not surprising that carriers fully engaged in managing the effectiveness of their recovery programs have developed responsive solutions, including improving their fleet MPG while using static numbers in the surcharge computations, applying the surcharge to all miles (not just loaded), updating the FSC amounts daily instead of monthly or weekly, managing out-of-route miles, and finding ways to increase the differential between the DOE and company average fuel price.

To quote the old adage, “What gets measured gets done,” start measuring Recovery % and join the large number of carriers who understand the benefits of making this a key business management metric.

Mail Contractors: Why Join the NSRMCA?

We completed a successful and informative convention of the National Star Route Mail Contractors Association Baltimore. With dramatic changes coming from the USPS - you need to know what's coming and how to respond.

Click here to read about the NSRMCA.

Free Webinar for LoadTrek.net Clients: What's New in the Latest Release

A new version of LoadTrek.net has been released. This release contains three items that you've been asking for:

1. For our postal contractor clients - a tool to audit your USPS compliance against the USPS compliance spreadsheet.
2. Static Job Frequency Template. Helps you set up those recurring loads, saving time by allowing you to apply a template for frequencies.
3. Automatic exception generation.

This webinar will discuss these added features.

• August 4, 1300 - 1400 CDT
• Sign up here to reserve your seat
  

Come See us in Baltimore August 7-11

LoadTrek will be attending the national convention of the National Star Route Mail Contractors Association. It is in Baltimore at the Renaissance Harbor Place Hotel, August 7-11.

If you are a member of the NSRMCA, it is highly recommended that you attend. You'll have a chance to network with USPS decision makers, collaborate with other HCR's, and find out what's happening in the mail contracting world.

If you are not a member of the NSRMCA, now is a good time to check it out. You'll find resources and access that you can't find on your own.

LoadTrek provides management tools that are ideal for mail contractors. Come by and see if we can help you. Contact us for more information or to set up an appointment.

American Trucking Association Response to the FMCSA's 5 Year Strategic Plan

Looking for a copy of the ATA's response to the FMCSA 5-year strategic plan?

We have it, contact us for a copy.

ATRI seeking input on top industry concerns

ATRI seeking input on top industry concerns