Here is an update on fuel prices as of 8/14/10.
From the US Energy Information Administration - the projected average annual retail fuel prices are detailed in this link.
Link to: Detailed snapshot of current fuel indices from the EIA.
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Saturday, August 14, 2010
Wednesday, July 14, 2010
Fuel Surcharges make up 40% of your logistics costs - know how they work
Fuel Surcharges make up 40% of your logistics costs – you need to know how they work
Around 10 years ago is when fuel surcharges became ubiquitous. Prior to that time, the cost of fuel was always there of course, but in those days shippers essentially paid for fuel as a part of their linehaul rates. The market changes in fuel costs were for the trucking companies to worry about. The impact of fuel was something left to maybe negotiate at year’s end, or perhaps as part of a contract renewal. The shipper’s perspective was that managing fuel costs were a 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 trucking companies to shippers.
With fuel surcharge making up 30-40% of a typical company’s logistics costs it important for managers in both operations and finance to know how fuel surcharges are calculated and how the diesel market affects their freight spend. These days shippers are directly exposed to the potentially budget crushing fluctuations 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 yet to be given 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, I just disagree that the tables represent the impact of fuel accurately for a carrier from an operating perspective. There is too great of a difference from carrier to carrier for it to be a true representation. This tells me there is a “fudge” factor built into the numbers allowing carriers to hide operating costs beyond just fuel in the fuel surcharge matrix.
For small package shipping, companies are at the mercy of UPS and Fed Ex for not just air and ground services and pricing, but to both company’s own fuel surcharge tables. There is not a lot to understand about small package fuel surcharge other than to know you have to think of the cost as an extension of their pricing and pay attention as the fuel prices change – for better or worse.
For truckload and LTL shipping, you’ll see fuel surcharge matrices calculated as both a per mile and a percentage of line haul cost basis. In both cases – the fuel surcharge table will be based on the US Governments Diesel Fuel Index (posted on the DOE website). It is updated weekly and is also calculated on a regional and national basis. Depending on the footprint of your trucking company either type of fuel index could apply. The “per mile” basis is simply calculated by adding the per mile charge on top of your line haul rate, then multiplied by the number of miles shipped. The “percentage” type surcharge takes the cost of the shipment (for LTL, the discounted tariff rate and for TL, the linehaul portion) and adds the percentage of cost derived from the table on to that. Just like you audit line haul costs on freight invoices, it is also important to audit fuel surcharges.
Fuel matrices are generally built to adjust with every $.05 increase or decrease in the DOE diesel fuel index and are effective for any shipments tendered in a given week’s period of time.
Ken has 15+ years supply chain logistics experience, and is founder of www.Fillship.com.
Around 10 years ago is when fuel surcharges became ubiquitous. Prior to that time, the cost of fuel was always there of course, but in those days shippers essentially paid for fuel as a part of their linehaul rates. The market changes in fuel costs were for the trucking companies to worry about. The impact of fuel was something left to maybe negotiate at year’s end, or perhaps as part of a contract renewal. The shipper’s perspective was that managing fuel costs were a 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 trucking companies to shippers.
With fuel surcharge making up 30-40% of a typical company’s logistics costs it important for managers in both operations and finance to know how fuel surcharges are calculated and how the diesel market affects their freight spend. These days shippers are directly exposed to the potentially budget crushing fluctuations 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 yet to be given 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, I just disagree that the tables represent the impact of fuel accurately for a carrier from an operating perspective. There is too great of a difference from carrier to carrier for it to be a true representation. This tells me there is a “fudge” factor built into the numbers allowing carriers to hide operating costs beyond just fuel in the fuel surcharge matrix.
For small package shipping, companies are at the mercy of UPS and Fed Ex for not just air and ground services and pricing, but to both company’s own fuel surcharge tables. There is not a lot to understand about small package fuel surcharge other than to know you have to think of the cost as an extension of their pricing and pay attention as the fuel prices change – for better or worse.
For truckload and LTL shipping, you’ll see fuel surcharge matrices calculated as both a per mile and a percentage of line haul cost basis. In both cases – the fuel surcharge table will be based on the US Governments Diesel Fuel Index (posted on the DOE website). It is updated weekly and is also calculated on a regional and national basis. Depending on the footprint of your trucking company either type of fuel index could apply. The “per mile” basis is simply calculated by adding the per mile charge on top of your line haul rate, then multiplied by the number of miles shipped. The “percentage” type surcharge takes the cost of the shipment (for LTL, the discounted tariff rate and for TL, the linehaul portion) and adds the percentage of cost derived from the table on to that. Just like you audit line haul costs on freight invoices, it is also important to audit fuel surcharges.
Fuel matrices are generally built to adjust with every $.05 increase or decrease in the DOE diesel fuel index and are effective for any shipments tendered in a given week’s period of time.
Ken has 15+ years supply chain logistics experience, and is founder of www.Fillship.com.
Wednesday, June 23, 2010
TL and LTL prices have increased - here are some details
According to Logistics Management Magazine, TL and LTL rates increased 1.6% and 1.1% respectively. Attached are charts from the magazine.
http://logisticsmgm-pwf.texterity.com/logisticsmgm/201006/?pg=14&pm=1&u1=friend
Interesting quote from the article - "truckers remain under extreme cost pressures, so every opportunity for new surcharges will be seized"
http://logisticsmgm-pwf.texterity.com/logisticsmgm/201006/?pg=14&pm=1&u1=friend
Interesting quote from the article - "truckers remain under extreme cost pressures, so every opportunity for new surcharges will be seized"
Wednesday, June 16, 2010
Truckload Pricing and Fuel Trends - Update 7/14/10
Updated Truckload Pricing and Fuel Data
Here is an update on fuel prices as of 6/17/10.
From the US Energy Information Administration - the projected average annual retail fuel prices are detailed in this link.
Link to: Detailed snapshot of current fuel indices from the EIA
The Truckload Price trends:
The Freight Transportation Services Index (TSI) rose 0.3 percent in April from its March level, rising for the third consecutive month, the U.S. Department of Transportation's Bureau of Transportation Statistics (BTS). BTS, a part of the Research and Innovative Technology Administration, reported that the Freight TSI index has risen 4.9 percent over the last 11 months, starting in June 2009, after declining 15.3 percent in the previous 10 months beginning in August 2008. The index has increased in nine of the last 11 months. The index started 2010 with a decrease of 1.4 percent in the first four months. For additional historic data, go to http://www.bts.gov/xml/tsi/src/index.xml.
The Freight TSI measures the month-to-month changes in freight shipments in ton-miles, which are then combined into one index. The index measures the output of the for-hire freight transportation industry and consists of data from for-hire trucking, rail, inland waterways, pipelines and air freight.
From the US Energy Information Administration - the projected average annual retail fuel prices are detailed in this link.
Link to: Detailed snapshot of current fuel indices from the EIA
The Truckload Price trends:
The Freight Transportation Services Index (TSI) rose 0.3 percent in April from its March level, rising for the third consecutive month, the U.S. Department of Transportation's Bureau of Transportation Statistics (BTS). BTS, a part of the Research and Innovative Technology Administration, reported that the Freight TSI index has risen 4.9 percent over the last 11 months, starting in June 2009, after declining 15.3 percent in the previous 10 months beginning in August 2008. The index has increased in nine of the last 11 months. The index started 2010 with a decrease of 1.4 percent in the first four months. For additional historic data, go to http://www.bts.gov/xml/tsi/src/index.xml.
The Freight TSI measures the month-to-month changes in freight shipments in ton-miles, which are then combined into one index. The index measures the output of the for-hire freight transportation industry and consists of data from for-hire trucking, rail, inland waterways, pipelines and air freight.
Tuesday, May 25, 2010
Transportation Pricing on the Rise - Survey
An excerpt from Supply Chain Today regarding the Freight Pulse 18 Morgan Stanley/ Logistics Today survey - by Dave Blanchard.
"According to FreightPulse 18, a semi-annual survey of preferred transportation modes conducted by equity research firm Morgan Stanley with Logistics Today, it’s expected that those shippers using rail carriers to move their freight will see a 2.5% hike in their rates through the end of 2010. Even so, rail carriers will see a 2.6% increase in the amount of goods shipped this year. Rail is generally the least expensive mode of domestic transportation, and volume growth is expected to be comparable to the 2003/2004 rebound."
Read the whole story...
Follow me on Twitter @kennethkowal
"According to FreightPulse 18, a semi-annual survey of preferred transportation modes conducted by equity research firm Morgan Stanley with Logistics Today, it’s expected that those shippers using rail carriers to move their freight will see a 2.5% hike in their rates through the end of 2010. Even so, rail carriers will see a 2.6% increase in the amount of goods shipped this year. Rail is generally the least expensive mode of domestic transportation, and volume growth is expected to be comparable to the 2003/2004 rebound."
Read the whole story...
Follow me on Twitter @kennethkowal
Sunday, May 23, 2010
Additional Resource for Truckload/ Logistics Pricing Trend Information
I just came across this and it may be worth monitoring: http://www.transcoretrendlines.com/
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