Small change in fuel surcharge formula can yield big savings for truckload shippers, survey finds

What can you get for a penny nowadays? If you're a big truckload shipper, how about $6 million a year in fuel surcharge savings?

A survey of 150 large shippers by Transplace, a Dallas-based third-party logistics provider, found that for a shipper with $100 million in annual truckload spend, a one-cent-per-mile adjustment in the formula for calculating fuel surcharges could cut the company's annual fuel surcharge bill to $32 million from $38.8 million, Transplace said.

Typically, fuel surcharges are based on the differential between current weekly diesel prices set by the Department of Energy and a contractually agreed upon base rate for diesel, an amount lower than the commodity's market price. The surcharge is calculated by adding a penny for every five or six cents per mile that market prices exceed the contract rate, and then multiplying that figure by the number of miles traveled.

For example, a shipper and carrier agree to a base diesel price of $1.50 a gallon. If weekly pump prices hit $4.00 a gallon and the interval of increase is set at 6 cents per mile, the amount comes to 42 cents a mile. The surcharge is then determined by multiplying that number by the mileage the truck travels.

Currently, the marketplace is split between 5 cents a mile and 6 cents a mile intervals, Transplace said. However, carriers are leaning towards greater use of the 6 cents a mile threshold--a far more favorable level for shippers—to reflect the increasing cost burden of fuel and a significant increase in the fuel-efficiency of the nation's truckload fleets, the company said.

The wider the per-mile interval, the more shippers can save. Based on an interval of 7 cents per mile—a level that is the exception rather than the rule—a shipper's fuel surcharge bill drops to $19.7 million a year.

Fuel surcharges are by far the most common of all "accessorial" charges imposed by carriers to compensate them for services not directly connected to the line-haul movement of the freight. For the first 10 months of 2013, fuel surcharges added, on average, nearly 18 percent to a truckload carrier's base rate for line-haul services, according to data from consultancy IHS Global Insight.

Fuel surcharges imposed on rail intermodal moves can be between 12 cents and 33 cents a mile lower than surcharges on truckload shipments, according to Transplace. However, some shippers use the same programs for both movements, an approach that leaves millions of dollars in unnecessary charges on the table, Transplace said.

Ben Cubitt, Transplace's senior vice president for consulting and engineering, said that intermodal fuel surcharges, if properly negotiated across a network, can cost shippers about half of a typical truckload surcharges. Shippers that budget the same surcharges for the two shipment types are not achieving the "full economic efficiencies of intermodal versus truckload moves."