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Fuel Surcharge
Customers have often asked: "what is this fuel surcharge" or "how much is the fuel surcharge and why is it important"? For these questions and whole lot more, please continue reading. During the mid 90's several long haul truck load freight companies added a surcharge to freight charges to handle rapidly rising fuel prices rather than changing freight rates. Adding a variable surcharge instead of raising the freight rates would give these freight carriers a competitive advantage during periods when fuel prices declined and would be fairer to their frequent customers. The fuel surcharge was based upon the current low price of diesel fuel and the fuel economy of various freight trucks. Every $0.05 increase in the price of diesel fuel would result in a small increase in the fuel surcharge that would be added to the total freight charges paid by their customers. Since long haul truckers are directly affected by fuel costs the addition of a fuel surcharge seems quite logical. Before long all segments of the trucking industry, including small package carriers, would add a fuel surcharge to their freight charges.
Today, the fuel surcharge has grown to become a significant portion of the total freight charges for truck load and LTL carriers. There is a huge difference in how carriers compute the fuel surcharge: The long haul (truck load) fuel surcharge rate is strictly based upon miles of service, which is identical to the method of computation for freight charges. As LTL (less than truck load) and small package carriers charge their freight fees based upon the weight of the goods, distance traveled and other factors it was logical to compute the fuel surcharge as a percentage of the freight costs. The fuel surcharges are based upon the average diesel fuel price published by the Energy Information Administration which is publishes the official energy statistics from the U.S. Government. Some carriers, especially long haul truck load companies, will use a regional price of fuel, while other carriers will use the national average price of fuel.
The current fuel surcharges as of March 22, 2008 are listed below:
TL = Truck load shipments (slips and clays). LTL = Less than Truck Load (most bulk supplies). UPS = United Parcel Service
Why Should Customers Care?
The simple answer to the question is because the fuel surcharge effects the cost of goods sold to the consumer. In some cases the fuel surcharge can have a dramatic effect. A 2000 lb shipment of 10 decent sized slabrollers or pottery wheels shipped cross country may cost $1000 for the freight charges.... before the nasty fuel surcharge adds $306.00 to the freight charges. Overall the basic freight charge adds $100 to the selling price while the fuel surcharge adds another $31 to the selling price. And the fuel surcharge continues to climb. Then there is the matter of slips and clays. A truckload of slip or clay traveling 1465 miles has $864 fuel surcharge added to the freight rate. The Seeley's plant in Upstate New York is exactly 1465 miles from Gulfport MS. Per trucking policies that $864 is paid regardless whether the truck is half full or completely full. Completely full has less impact on the selling price than half full.
Anything WE can do about Fuel Surcharges?
There are several things that WE (you and us, the collective WE) can about rising fuel surcharges. Of course we all can economize, drive fewer miles and maintain our vehicles to reduce the demand on fuel. More importantly WE can economize in the business. The 2000 lb shipment previously mentioned is a good example. The freight is $1000. When the shipment size is doubled to 4000 lbs the freight increases by only $500. Increasing the shipment to 5000 lbs from 4000 lbs and the freight increases by $50 more. The fuel surcharge remains the same percentage but the base freight rate goes down as the order size increases. Economizing in the business becomes a customer service issue as we (Dogwood) decide to whether to make smaller, more costly to ship, purchases versus larger, more economical to ship purchases. Planning truck loads of slips and clays are just as important. A truck load of 39,000 lbs is ready to leave the factory. There is room on the truck for an additional 5,000 lbs but that product will not be ready for one business day. Do we release the truck without the extra product? Do we hold the truck waiting for the additional product? Or do we pack the truck with extra product (that may or may not be needed at this time) just to maximize the load? The answer to these questions becomes a customer service issue. It also becomes a cost issue. What if that delay was 10 business days? We are asking ourselves these same questions across every product division that we sell. There are no easy answers. The ceramic mold industry is being dramatically impacted by these issues. Dogwood Ceramic Supply places a 2000 lb order with a mold company on the first of the month, the manufacturer ships on the 15th and on the 16th Dogwood places a 3000 lb order. Just think of the money that could have saved if those orders were combined together! At the same time think of the declining level of customer service had those orders been combined together and the extra molds took two or three additional weeks to complete. As it has been said there are no easy answers. These freight issues important on the inbound side of Dogwood Ceramic Supply, they are even more important on the outbound side of the business. In early February Dogwood Ceramic Supply held a 500 lb order that was to be shipped motor freight (LTL) to a key customer. Gasp, horrible, how cruel. However, during the following week Dogwood received a rather large order, 6000 lbs of which was for that same customer. We saved the customer $125 in freight charges by combining the two shipments into one. Thinking ahead can be very important. We can't avoid the fuel surcharge, but we can ship smart so as to avoid wasting our shipping dollars.
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