Covering the Cost of Fuel


October 24, 2012

I was recently tapped in an on-line conversation concerning the relevance of the fuel surcharge as a means of covering fuel costs.

One poster stated: “Not to side with Timothy Brady, but the fuel surcharge is largely irrelevant. I could be saying that because I get one. What the FS really does is provide a mechanism for longer term contracts. If you get $1 per mile (for math purposes) what difference does it really make what you call it? 60¢ for reg rate and 40¢ per FS or just $1. What higher fuel costs do is encourage efficiency.”

Another poster responded: “I wouldn’t say it’s irrelevant, — definitely related to the problem of fuel-price volatility and allows truckers to pass along the volatility in contracts. Ultimately, yes, truly beating fuel prices is a matter of increasing efficiency.”

Here’s my response:

Current Fuel Surcharge methods of the vast majority of trucking companies promotes inefficiency, which is why it makes today’s FS irrelevant. The fact that it’s only loosely connected to the real time price of fuel is the reason for its irrelevancy. The concept goes back to pre-deregulation and the ICC, when the government actually set and adjusted the FS. When the FS is only adjusted once a month, it’s not a fuel surcharge, but something totally unrelated to fuel cost. It becomes more a means of rate price control for the shipper, broker and the carrier to their lease operators and company drivers. Since the methods and formulas for fuel surcharges are set by each individual shipper, broker or carrier and no longer by the government, the FS becomes a tool of manipulation, not reimbursement of actual fuel costs.

With technology providing instant access to real time fuel prices, it makes sense to have a Fuel CAP™ (Fuel Cost Adjustment Policy): a carrier has a per-day truck use rate plus a mileage rate that encompasses the operational cost and fuel cost.

Example: for a truck getting 6 miles per gallon, for every nickel increase or decrease in the price of fuel, the Fuel CAP is adjusted by a penny per mile. If your fuel cost per mile is 67 cents per mile at $4.01 per gallon, and the price for fuel goes to $4.06, the rate per mile for fuel would increase to 68 cents. If it went to $3.96 per gallon, it would decrease to 65 cents. Place the trucker’s pay and carrier’s profit in the per Day Truck Use Rate and have the real time fuel and operational costs as add-ons to the per Day Truck Use Rate for actual miles driven. This takes care of two things in one move:

One: the trucker and carrier are being fully compensated for their fuel costs in real time.

Two: Because the Day Truck Use Rate is based on actual time involved with the load; from waiting, to loading, to driving, to waiting to unload, the trucker and carrier are compensated for all time involved in the load. This eliminates the need to add detention time as it’s already included in the per Day Truck Use Rate if the shipper delays loading or unloading the truck.

Some other benefits are:
Truck drivers could be paid a per-day rate plus a per-mile rate which would help close the gap of lost revenue or pay they experience under the current system.

It would create incentive to shippers to be more efficient in getting a load on or off a truck in order to avoid paying an extra per-day rate.

Finally, it would create a far safer environment for truckers and others using the nation’s highways, since a trucker wouldn’t be under the “gotta get the miles covered” dictum when a shipper has taken valuable drive time away from the trucker with loading/unloading delays.