Spiraling fuel costs demand strategy.
By Timothy Brady

Here we go again! The headlines read “Per Barrel Price of Oil Price Nears $90; Expected to Continue Upwards.” The problem with trucking is there’s no alternative to using fuel to move our trucks, and no matter how high the cost of fuel goes, we’ve got to have it to run our operation.  In theory, the best business strategy is as the fuel price increases, we must raise our freight rates to reflect the climbing costs. However, this line of attack very quickly becomes a double-edged sword. Each time we increase the cost of shipping products, then manufacturers and retailers pay more, and they increase prices to their customers, which means we all pay more for everything we consume or purchase. It becomes a maddening circle. The most difficult part is that the price increase doesn’t net us any more money. It just helps to cover a cost increase. Is there a better way?

As much as the following statement is getting old, it still holds true. If you can’t control the cost of fuel then you must control how much you use. We’ve heard of reducing our carbon footprint; in the same vein we need to reduce our fuel ‘fingerprint.’ We must look at our fuel usage and see where we can use less or eliminate unnecessary use altogether.

There are the obvious ways:

• First and foremost, constantly monitor fuel mileage on each vehicle to determine if a fuel consumption problem is developing.
• Reduce or eliminate engine idling. This means every time a driver climbs out of a vehicle he shuts down the engine. He only uses the APU during the times it’s necessary.
• Replace tires with low rolling-resistance tires; constantly monitor and adjust tire air pressure.
• Keep engines and transmissions in top running condition by doing prescribed preventive maintenance, and repairing any running gear that’s malfunctioning.
• Install SmartWay Certified technologies that reduce drag and increase fuel efficiency. 

The bottom line on reducing or eliminating unnecessary fuel consumption is that it must be done in small steps. There are very few single actions that can be implemented to reduce or eliminate fuel use, but there are a multitude of small, incremental activities that, when combined, can reduce the fuel fingerprint.

The next step in your business fuel strategy is to shift your savings efforts to improving your profitability and provide a. competitive edge in acquiring and retaining shippers. I have previously discussed Fuel Cost Adjustment Policy (FuelCAP™). Here’s a recap of the FuelCAP™ system: The idea is to create a much more equitable policy for both you and your shipper so your rates include the actual cost of fuel. The current fuel surcharge method is always looking back at what fuel cost in the past, and then attempting to adjust it so it equals some lower amount per gallon; i.e., $1.10 per gallon or $1.50 per gallon. Obviously, these are very unrealistic numbers in today’s trucking operations. Also, this method in a volatile fuel price environment leaves the trucker behind the fuel cost eight-ball. A better way is to calculate a Fuel Cost Adjustment Policy (FuelCAP™), thereby separating your fuel cost from the rest of your hauling rate. Determine your break-even point with all your other expenses, add in your capitalization point to figure your base hauling rate, then add the actual amount the fuel costs on the load, based on the truck’s real fuel consumption. Think of this in terms of the same way a mechanic charges to repair your truck: time plus parts. You’ll charge a hauling rate plus fuel.

But the question usually raised is, if this works great for the carrier, how does it benefit the shipping customer? This fuel management policy’s main component is how a carrier who has reduced its fuel fingerprint can lower the amount a shipper pays to ship their products without reducing the carrier’s profit. Since the shipper is paying the actual cost of fuel for his load, the more fuel efficient a carrier is who’s hauling for the shipper, the lower the cost to the shipper. Case in point: Trucking Company A’s truck gets 6 mpg. Carrier B’s truck gets 7.5 mpg.  The cost of fuel at $3.00 per gallon for Company A’s truck for a 3,000 mile trip is $1,500. The cost of fuel for the same trip for Carrier B’s truck is $1,200, which means a savings of $300 for the shipper using Carrier B. The best part of this is by having the fuel as a separate charge on the shipping invoice, the cost of fuel is covered within the hauling rate quoted to the shipper. Increases and decreases in the fuel expense are removed from the Profit/Loss structure of the trucking company and create an environment where the more fuel-efficient a carrier is, the lower the cost to the shipper. Result? A win-win for both.

Good loads and good roads, everyone.

Timothy Brady
© 2010
www.timothybrady.com