By Timothy D. Brady -- The fuel surcharge is an antiquated policy that is so far behind the times it's really sad. The whole idea of the way it is administered goes back before deregulation of the trucking industry. anyone who thinks calculating the fuel surcharge on the last day of each month and then adjusting it on the 15th of the next month has got to have their head in the sand.

The actual beginning of the fuel surcharge goes all the way back to the late Seventies and a time before deregulation. The ICC (Interstate Commerce Commission) established the fuel surcharge to help regulated trucking companies pay for the sudden increase in fuel costs. The same basic formula is used today. The first surcharge was a percentage of the line haul and was assessed across all segments of the industry. The initial was a percentage of the line haul. The idea was to reimburse the purchaser of fuel for the increased cost of fuel which wasn’t addressed in the tariff rates as set by the ICC. The fuel surcharge percentage was reevaluated at the end of each month and, based on the price of fuel on that date was adjusted up or down on the fifteenth of the following month. The general formula and method has been used ever since. The idea was the ups and downs of the cost of fuel would eventually even themselves out.

Next the history of the cost of a gallon of diesel. In the Fifties and into the early Sixties, the cost of a gallon of diesel was between a nickel to a dime a gallon. By 1994 it had increased to around $1.10 a gallon, an increase in forty years of a little over a dollar a gallon or about $500 for five hundred gallons of diesel. From April, 1994 to April, 2007 the cost of diesel increased from $1.10 per gallon to $2.85 per gallon, so a five hundred gallon purchase increased from $550 to $1425, or $875 in thirteen years. From April of 2007 to May of 2008 the cost per gallon of diesel increased from $2.85 to $4.42, so a five hundred gallon purchase increased from $1425 to $2210 or $785in just a single year.

The problem now is if you adjust your fuel surcharge, even weekly, based on lasts weeks fuel price and the fact that the price is not expected to decrease in the foreseeable future, there won’t be any equalization. The fuel surcharge will not reflect the actual cost of fuel. It will be a week or more behind the current fuel cost and many dollars short.
So, in short, the bills before Congress won't solve the problem, because they don't address the root problems.

Getting back to the fuel surcharge, there is a way to accomplish being able to handle these wild increases in fuel and be able to actually generate the revenue needed to pay all the expenses of a truck load of HHG shipments. But it involves more than just revamping how fuel is calculated into the hauling rates. There going to be a need for some major changes in both how the HHG business is conducted.

1) Knowing the break-even point of each truck and driver in an operation regardless of whether they are company drivers or O/Os. Each truck and driver is a mini division of your company and must be operated profitably in order for the whole operation to succeed.

2) Greater utilization of your van operators and the trailers they pull.

3) In the current economic environment, the old way of calculating a fuel surcharge will carry you to the poor house (business failure) faster than any other expense except under utilization of assets.

4) Rates need to be set on what it cost everyone, including the van operator to run their truck and this must include fixed costs of the van line, agency and van operator, Constant Variable costs to operate all divisions, and the load specific costs of the current shipments.

5) Certain aspects of how a moving agency is run will need to change. There will need to be different pricing levels for different of moving services. From basic self-service to the premium top corporate or COD move. This will be necessary because of the major shortage van operators and the fact it’s not going to get any better.
There's a change in the wind, are you prepared to tack so you don't end up in irons?

Copyright 2008 Timothy D. Brady

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Recent Member Comments [Comment on this Article]  7/1/2008 11:04:55 PM... Do you do this through Carlyle Van Lines?  I think United, Atlas, etc. have rules against using a different carrier.  I think a JB Hunt tractor hauling an agent trailer, might pass the test, but hiring a seperate trucking company probably wouldn'...  7/1/2008 10:25:19 PM... I thought I would add to the subject since I have been doing something like this for 3 yrs. I work with a company that provides me with fully equipped 53 ft air ride trucks and trailers. Pads , dollies, straps,and car ramps. If I needed 10 next week...  7/1/2008 8:56:19 PM... Wouldn't it be better to have the O/O's load 2 trailers. Then have the freight company pull the second one to dest and drop at dest for the O/O to del when he got there? Without question.  I couldn't think of a bigger problem than having inexperi...  7/1/2008 12:46:04 PM... This is a bad summer for the APU.  I have been doing a lot more than usual, sometimes with same day notice.  I love getting that call, sometime mid morning, that there is a shipment that the Van Line can't cover and we have to get it.  Last week of J...  7/1/2008 12:37:54 PM... Quality talk is pretty shallow and cheap when the constraints to quality work increase in direct proportion to the quantity of our shipment bookings.  I choked on my own words doing APU's all last week and the start of this week.  ...