Fuel Surcharge: Where Does The Baseline Come From?

Discussion in 'Ask An Owner Operator' started by Nootherids, Jan 25, 2011.

  1. Nootherids

    Nootherids Light Load Member

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    So I've been trying to figure this out for a while... Where does the FSC Baseline come from? Who sets the Baseline?

    There are sites and tools that to this day still use the $1.20/mile baseline from pre-2000 years. Then other places have updated to $2.50/mile baseline as of 2008. I read one place that they were using the Baseline as set by the DOD, but then somewhere else said that the Baseline happens to coincide with the cost of crude oil. I found the cost of crude oil but I can't find the baseline for the DOD anywhere.

    As part of calculating the FSC you need the published diesel prices and I do know how to find the average weekly diesel prices as stated by the DOE. But my ongoing search is focused on trying to find what the Baseline is supposed to be.

    In my opinion the old baseline of $1.20/mile sounds extremely outdated. Is this still what is used industry-wide? Is $2.50 a more fair current baseline rate now? How do you set your baseline? Is there a central point where I can look up what the published baseline should be???
     
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  2. rickybobby

    rickybobby Road Train Member

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    Maybe this will help http://www.fuelsurchargeindex.org/
     
  3. High Desert Dweller

    High Desert Dweller Medium Load Member

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    That 1.20/mi baseline is useless. It was used by common carriers when rate tariffs were still in place.

    All fuel surcharges are based on regional pump prices released weekly by the DOE:

    http://www.eia.doe.gov/oog/info/wohdp/diesel.asp

    When you negotiate a contract rate with a shipper, it is normally based on pcmiler or RM practical route miles, sometimes short miles depending on the shipper. Then you adjust your billing rate based on the weekly DOE pump price, usually 1 cent/mile for every 5 cents a gallon in price change.
     
  4. Nootherids

    Nootherids Light Load Member

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    Been there and tried that. But they ask you to input your own baseline as well. What they call the "Trigger". And their default systems are also still using the $1.20/gallon baseline.

    Exactly, I agree that the $1.20/gallon baseline is no longer fair since it was established over 10 years ago. That web page gives you the second part of the equation which is the average current gas prices. The part that I am trying to find out is the first part of the equation...the baseline. And I can't find that anywhere.

    Does someone know to check the baseline currently used by the DOD? Since they are the only federal establishment that REQUIRES that the FSC be passed on 100% to the person that pays for the gas. Meaning that companies hired by the DOD can't take their own portion before giving it to their o/o's.
     
  5. High Desert Dweller

    High Desert Dweller Medium Load Member

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    I've got the DOD baseline table, but will have to copy it to a public server when I get home. Frankly, I don't think it will help you much. Most of the military freight moves through Menlo Logistics now, on flat rate quotes. And, if you happen to get a domestic move under a contract,(say, an explosives load w/ Landstar) the surcharge and accesorials need to be clearly printed on the BOL or the military won't pay it. So if it's not on BOL already, your probably not entitled to it.

    I think the baseline was 2.50/gal with an incremental percentage increase up to 5.00/gal...? Will post a link later....
     
  6. Nootherids

    Nootherids Light Load Member

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    Yeah, I don't particularly plan or transporting for the DOD but they seem to be the only one that has a set and fair Baseline, I just don't know where they publish it.

    So for the O/O's that are actually charging a FSC...what baseline do you use and how did you come up with it? Or do you just ask the broker/shipper what they're willing to give you and you just agree?
     
  7. jdrentzjr

    jdrentzjr Road Train Member

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    Frankly I would not worry about a baseline for FSC. All you need to do is know what it will cost to operate your truck without the cost of fuel. Then when booking freight calculate the projected cost of fuel to move that particular load and add it to the rate.

    Example: let's say your fixed and variable costs are $1.00 p/m. You are looking at a load that is 1000 miles long. Let's say the average price of fuel is $3.50 for the region you will be driving in. Divide the total trip miles by your trucks average mpg which will give you the number of gallons you will need for the trip. Then multiply that by $3.50 to give you the total cost for fuel. So add your fuel cost to $1000 and this is what your minimum rate should be.

    No need for a FSC. You just need to know what it cost to operate your business.
     
  8. Working Class Patriot

    Working Class Patriot Road Train Member

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    Exactly!......:biggrin_25514:
     
  9. High Desert Dweller

    High Desert Dweller Medium Load Member

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  10. Nootherids

    Nootherids Light Load Member

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    I agree with everything you are saying, but I have been doing some calculations and have been exploring some opportunities to establish set routes with set shippers/brokers with continuous weekly runs. If you are running new routes with new shippers/receivers every day then yeah, you'll be negotiating for different prices on a daily basis. So when the fuel goes up by $0.20 in one month it's not a big deal cause now you just negotiate at higher total costs. But the beauty of establishing set routes and contracts is that it provides you a fairly stable and predictable level of profitability. The one thing that can throw this off is the highly unstable fuel costs. In this sort of scenario is when establishing a FSC derived from a pre-defined baseline makes the most sense to maintain that level of stability.

    I know that 3 months ago I had to add the variable cost of .55/mile to all my loads to determine profitability, and now I have to add .62/mile because the price of gas has gone up.

    Establishing a FSC is similar to negotiating who will pay for lumpers... You can always choose to just negotiate a higher overall rate for all your loads, then you know that you MIGHT make all that money or you MIGHT make $200 less. Or you can agree ahead of time who will cover lumper costs and how much you will get if you unload yourself, at which time you will have a definite profit from that load and if you pay lumper it doesn't hurt you at all, or if you do it yourself then you can pay yourself a nice little bonus.

    Back to the FSC Baseline topic, I like being fair and I just don't think that the 10 year old baseline is fair, which is why I would like to know where the O/O's that are actually requesting FSC are getting their baselines, or are they using the default 10 year old one?

    That link was AWESOME!!!!!!! Save this link as well though....
    http://www.sddc.army.mil/Public/Global Cargo Distribution/Domestic/Fuel
    That is the direct link to the military department that sets those policies. So if a new one were to come out that's where you would find it. BTW...from what that rule says the government will pay you an additional 10% of your revenue based on today's prices. NICE! At least with a document like this I can go to shippers and establish a common ground of where all the variables of the FSC are being derived from. The DOE and the SDDC. :biggrin_25514:
     
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