Many years ago ARCLOGIX added a fuel adjustment surcharge function to the carrier rate maintenance
part of our software. At the time fuel prices were stable and the function was rarely used. Its disuse lead to
the function not being initially carried forward into newer versions of our software. In 1998, the fuel surcharge
function was re-introduced into our software allowing a fixed fuel adjustment to each carrier for a user-defined
period of time.
The interest in a more comprehensive solution to the constantly changing cost of fuel
has been increasing over the last several years, especially after the events of September 11, 2001. Today the
root cause of rising fuel costs is political unrest in oil producing regions of the world. |
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Year 2001 and 2002 saw dramatic fluctuations in prices and since the beginning of 2002 the average price
per gallon of diesel fuel has risen almost steadily from a low of $1.14 to $1.75 in the spring of 2003. |
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Regional fluctuations in prices closely followed the national trend with some temporary cost spikes. The rapid
fluctuation of diesel fuel prices increasingly makes it imperative that all transportation management system
software include a comprehensive and easy to use fuel surcharge module. Carriers in particular are demanding
a flexible fuel cost factor to their rates without the requirement to constantly renegotiate new contracts with
shippers. |
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| The following discussion gives ARCLOGIX's view on such functionality. As always we solicit
all reader input on our papers. |
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| The shipper maintains a table in the transportation management system consisting of records
with a minimum and maximum fuel cost along with a pre-approved fuel surcharge rate. The fuel surcharge is either a
cents per mile adjustment for truckload carriers or a percentage multiplier of the delivery charge for less-truckload
carriers. There are two methods in which this table can be used. |
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| In the Actual Cost method the average DOE fuel cost in effect during the time of the shipment is
found within one of the ranges in the table and the mode appropriate surcharge is calculated and applied to the carrier
rate. |
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| For example, the average DOE fuel cost for the week of 01/06/2003 - 01/13/2003 was $1.50 per gallon.
In the Actual Cost method, if the shipper table was: |
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| Lowest | Highest | Per Mile | Percentage |
| Fuel Cost | Fuel Cost | Adjustment | Adjustment |
| 1.25 | 1.29 | 0.00 cents | 0.0 % |
| 1.30 | 1.34 | 0.01 cents | 0.5 % |
| 1.35 | 1.39 | 0.02 cents | 1.0 % |
| 1.40 | 1.44 | 0.03 cents | 1.5 % |
| 1.45 | 1.50 | 0.04 cents | 2.0 % |
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| A truckload carrier would be awarded a fuel surcharge of 4 cents per mile, and a less-truckload
carrier would be awarded a fuel surcharge of 2% of the delivery charge. |
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| In the variance method the system determines the variance between the base fuel cost in the
carrier's contract and the DOE fuel cost in effect at the time of shipment. This variance is then found within one
of the ranges in the table and the mode appropriate surcharge is calculated and applied. In the Variance Method
ranges in the table are not the actual fuel costs but the variation from the carrier's base fuel rate to that of the
DOE fuel rate. |
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| For example, the average DOE fuel cost for the week of 01/06/2003 - 01/13/2003 was $1.50 per
gallon. If a carrier's contract base fuel rate was $1.25 per gallon, using the Variance Method and the following shipper
table: |
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| Lowest Fuel | Highest Fuel | Per Mile | Percentage |
| Variance | Variance | Adjustment | Adjustment |
| 0.00 | 0.00 | 0.00 cents | 0.0 % |
| 0.01 | 0.05 | 0.01 cents | 0.5 % |
| 0.06 | 0.10 | 0.02 cents | 1.0 % |
| 0.11 | 0.15 | 0.03 cents | 1.5 % |
| 0.16 | 0.20 | 0.04 cents | 2.0 % |
| 0.21 | 0.25 | 0.05 cents | 2.5 % |
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| A truckload carrier would be awarded a fuel surcharge of 5 cents per mile and a less-truckload carrier
would be awarded a fuel surcharge of 2.5% of the delivery charge. |
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| This method has the advantage of giving a common solution to the problem of rising fuel costs and
lowers the level of system maintenance required to administer the program. |
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| Carrier determined fuel surcharges use the same methods as the Shipper Determined examples, above,
except that the carrier provides the table of fuel cost ranges with fuel surcharges. This method has the advantage of
letting each carrier determine their own surcharges, but the disadvantage of increasing the time required to approve,
enter and maintain different tables for each carrier. |
