Home > Uncategorized > Supply Chain Spend Management: Fuel Surcharges

Supply Chain Spend Management: Fuel Surcharges

November 11, 2010 Leave a comment Go to comments

Around a decade ago is when fuel surcharges became ubiquitous. Prior to that period, the cost of diesel fuel was always there, but back then shippers essentially paid for fuel as a part of their linehaul rates. The market fluctuations in fuel costs were for the trucking companies to worry about. The impact of fuel was something left to perhaps talk about or negotiate at year’s end, or possibly as part of a contract renewal. The shipper’s perspective was that managing fuel costs were a logistics software trucking company’s problem to understand and account for. Since that time, the burden of dealing with market changes in fuel costs has shifted from the carriers to shippers.
With fuel surcharge making up as much as 40% of a typical company’s supply chain logistics costs it important for people across the organization and through social media logistics to know how fuel surcharges are calculated and how the diesel fuel market impacts their freight spend. These days shippers are directly exposed to the potentially significant changes in fuel costs and the curiously structured surcharge matrices.

Theoretically the fuel surcharge tables that most carriers use are a direct representation of actual fuel costs to calculate the fuel surcharge but I have not seen an explanation that makes me feel comfortable that the matrices are more than just an extension of a carrier’s line haul costs. This is not to say that fuel costs are not a major cost factor for carriers, it does not seem that the fuel matrices represent the impact of diesel cost changes accurately for a truckload company from an operating perspective. There is too large of a difference in the fuel rate tables from company to companies for it to be an accurate depiction on actual costs. This seems to be an indication that there is a cushion “fudge” factor built into the numbers allowing carriers to bury other costs beside just fuel in their diesel surcharge matrices. Logistics Software.

For small package shipping from your order fulfillment location, companies are at the mercy of U.P.S. or FedEx for not just over night and ground delivery services and pricing, but to both company’s individual fuel surcharge matrices. There is not a whole lot to know about small parcel fuel surcharges other than to recognize that the cost really serves as an extension of their pricing and monitor it as the fuel index adjusts – for the better or worse when it comes to the costs you have to pay.

For full truckload spend management and less than truckload shipments, you’ll see fuel surcharge matrices calculated as a per mile and as a percent of line haul cost. In both instances – the fuel surcharge table will be calculated off of U.S. Government’s Diesel Fuel Index. It is updated weekly on Monday and is presented as a regional and national basis. Depending on the footprint of the carrier, either type of fuel index could apply. The “per mile” rate is simply determined via your logistics software by adding the per mile rate on top of the line haul rate, then multiplying it by the total route miles shipped. The “percentage” basis surcharge takes the cost of the shipment and adds the percentage of cost determined from the table to that. Similar to how you audit line haul costs on freight bills, it is equally important to audit fuel surcharges on the invoice.

Supply Chain Logistics
Fuel matrices are typically structured to change with every $.05 movement in the applicable diesel fuel index and are effective for the shipments picked up in that given week’s period of time.

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