Old Dominion to waive fuel surcharges in new tariff if pump prices stay below $3 a gallon

Old Dominion Freight Line Inc. said yesterday that, effective Nov. 30, it will introduce a tariff under which noncontract customers will not pay a fuel surcharge if the federal government's average price of on-highway diesel fuel is less than $3 a gallon.

At the same time, the Thomasville, N.C.-based less-than-truckload (LTL) carrier will impose a 4.9-percent rate increase on shipments moving under its current tariff, which will remain in place after Nov. 30. The adjustments also included what Todd Polen, Old Dominion's vice president of pricing, called in a statement a "nominal increase" in the carrier's minimum charges on interstate, intrastate, and cross-border traffic.

Old Dominion said in the statement that the new tariff is designed to eliminate the headaches for shippers in estimating the impact of fuel costs on their operations and pricing. Diesel fuel prices, calculated weekly by the Department of Energy's Energy Information Administration (EIA) based on an average of pump prices across multiple regions, stood as of yesterday at $2.48 a gallon.

In an e-mail, Polen said the new tariff's base rate is "dramatically lower" than its current tariff rate. However, customers using the new tariff will have little or no opportunity to negotiate discounts, he added. "No matter how you get there, we still have to make a profit," Polen said.

Polen said the LTL supply chain has a "new starting point" for base rates in light of the dramatic and prolonged decline in oil and diesel fuel prices. Polen added that he sees an "emerging trend" toward more simple, back-to-basics carrier pricing. The advent of automated route analysis, exemplified by transportation management systems (TMS), has led to "complicated formats, lane pricing, ZIP code pricing, city/state, and other odd combinations," he said, adding that effectively managing all the variables has become "very cumbersome for both the carrier and (the) customer."

Fuel surcharges were first imposed during the Arab oil embargos of the 1970s, when oil prices spiked to what were then unprecedented levels. They were removed a few years later, after oil prices went into a multiyear decline, only to reappear in the mid-1990s in the form of 1- to 2-percent "emergency" surcharges when diesel prices exceeded $1 a gallon, also a record at the time.