Fuel surcharge

And typically, in the contract market - the "up charges" (accessorial charges - lumper, tolls,, detention, ordered not used, and yes, FSC) are added as line items, and used "negotiating tools". On the spot height market - the small carrier KNOWS what his expenses are, what his bottom line cost-of-operation is (even on a load by load basis, as well as the "big picture"), and decides what they want/need to make, in order for a load to make GOOD BUSINESS SENSE. You're not going to spend a 1/2 hour "negotiating" with a shipper/broker, getting your flat rate to where YOU WANT IT to be, and then say - "now add $.42 per mile FSC". You focus on the rate for the haul, make sure you get your tolls, detention and other non-road-related COSTS covered and book the load.

Give you a "bad analogy" (to the #2/boilers scenario) - but one I'm familiar with.

I've been an "IT Geek" (30 years in the field - I do only Law/CPA offices). My big client, charges, per page - for fax's, printed documents, copies and even SCANS for email (since very little actually get's faxed any more, it's mostly done via email - it's billed as a "technology fee, typically 2 cents per page) - ACCESSORIAL FEES. They don't get a retainer agreement, then "throw" these fees on - it's part OF the retainer agreement - but their hourly rate is their hourly rate (which is based on cost of operation, skill level and type of law/litigation for a particular case). On it's OWN - the technology fee, per case, doesn't add up to a whole lot. Over the course of a year (big picture), the "technology/print fees", pay for the toner, equipment maintenance, etc. Not that the BASE RATE doesn't cover this stuff - PLUS a PROFIT - but turns into "extra gravy".

Spot market freight is a totally different animal - but a similar scenario regarding the BIG PICTURE. Considering FSC as a "rate negotiating tool", degrades the RATE ITSELF in the sport market. Negotiating a CONTRACT RATE, and then adding FSC in as a "cost variable" in an ongoing contract is great - if you can GET IT. But if you're not covering your "cost of operating PLUS PROFIT" in the base rate - then you LOSE when the fuel prices go DOWN.

So like Bill says - fuel high = higher cost of operation = raise of BASE RATE. If the market can BEAR that higher rate, when fuel is high - than the market can CONTINUE TO BEAR the rate when it goes back down - so you KEEP your rate - your operating expenses go DOWN and your PROFIT MARGIN GOES UP.

I'd be more concerned with getting TOLLS COVERED in a rate confirmation (Think GW bridge, etc.), and getting my OPERATING EXPENSES covered in the base/flat rate.

Rick

sorry for babbling, first post of the morning is usually that way - LOL...

 

A few years ago now, I remember getting a notice from one of my raw product suppliers, that they were adding $200 to every shipment as a fuel surcharge until the price of diesel went back below $2.25/gal. Now the price of freight had NEVER been discussed with them, we just had a deal that I was paying this _________ price for their product delivered to my dock.

I called them up and laughed. Told them, basically you want $200 more for your product, because fuel is never dropping under $2.25 again. In my opinion, it was just bad business on their part. Man up and say you need to negotiate the price, don't hide behind fuel. And I asked them, so when fuel is $2.24/gal I get a $200 price break, but at $2.25 I don't? Makes a lot of sense.....

I don't hide behind the cost of electricity to run my plant (currently about $10,000/month). When you buy a product or service, you agree on a price, why fuel and trucking is some magical mystery that has to be discussed as a separate item is silly in my opinion. When I hire O/O's I tell them I want a rate, no time to listen to their fuel stories or surcharges.

 

Nor should you.

That's the EXACT POSITION that most folks on this thread are taking - and the reason WHY a negotiated flat rate on the spot freight market is betting than "haggling" with a broker to get FSC ADDED IN, or quoted/broken out - as a way to make the RATE appear to be "better" - when in fact, it's all the same thing. THE RATE IS THE RATE. In "informed carrier" will KNOW what it takes to operate his equipment, what the run is going to COST and what he WANTS/NEEDS to charge to do that particular run PROFITABLY.

Spot Freight Market is NOT the long term contact market - where regular runs are based on a long-term contract price - usually bid against others - where a short term variable (fuel prices and other accessorial charges) has to be "added in" on top of the contracted negotiated rate (and is done so in the form of a tariff rules or bill of particulars).

I'd suspect - if the cost of "whatever you make" goes up, based on: raw materials, labor costs, and what it takes to run your operations (fuel, electricity, etc.) - you will have to RAISE THE PRICE of "whatever you make", in order to compensate for those rising costs - or it cuts into your ability to run your business at a PROFIT.

We're all here to MAKE MONEY, after all...

Rick

 

In most industries it is called an inflation index. This will be included into a long term agreement to adjust for the increase in boiler fuel, electricity, labor, etc.

 

It's not hard to figure out. On a spot bid, you know what the price of fuel is today, for a single load you are going to book today. You simply factor that in to your flat rate bid and go for it. You will adjust that rate on a daily basis.
A fuel surcharge is nothing more than a temporary rate adjustment, to a long term hauling contract. You know the rate today, when that contract starts, but you don't know what the price of fuel will be six months, or a year, down the road while that contract is still in effect.