Do the math

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On the day I wrote this column-May 19, 2004-fuel at the London, Ont., Flying J was 69.7 cents a litre, cash price. That’s just over $3.30 per U.S. gallon in Canadian dollars. California on-highway diesel sold around $2.24 per gallon. Washington State showed the worst prices that day, $2.30.

I suppose there’s some comfort in the knowledge that it’s been worse. On March 17, 2003, the Freight Carriers Association (FCA), a Fort Erie, Ont.-based organization that monitors fuel prices and recommends freight-rate increases and fuel surcharges, posted its highest bulk fuel price ever: 76.1 cents per litre. We’re not there yet, but at the time, the FCA was recommending a 13.0-per-cent fuel surcharge on cross-border truckload shipments.

Back in January 2001 when pump prices topped 80 cents in parts of the country, the FCA recommended an 8-per-cent surcharge. Today, with diesel hovering close to 70 cents at the pump, the association is calling for a surcharge of 10.1 per cent.

As an owner-operator, is there anything you can do about these prices? Not really. But being aware of the impact of fuel prices on your earnings can help in dealing with carriers when it comes to getting a fair pass-through of the surcharges, or at least in determining what you need to make up for the difference in operating costs.

Judging by the small number of complaints I hear from readers, I’d have to say that the surcharges are being passed through pretty consistently. It was different in Spring 2001. There may still be some question about how much is being passed along, but it’s clear that more is being done today than in the past.

Recent remarks by David Bradley suggest that shippers are more willing to pay fuel surcharges and other accessorial fees. “It’s still early days,” says the chief executive of the Canadian Trucking Alliance and president of the Ontario Trucking Association, the country’s two largest truck lobby groups, “but the mood in the market seems more accepting of rate increases and accessorial charges where the shippers are provided with credible information on delays, cost increases, etc.”

Credible information is the key. When determining individual need for rate adjustment in the form of a fuel surcharge, you first have to know what to ask for.

When the FCA calculates its suggested fuel surcharge, it starts with the percentage increase of the Canadian average bulk price of fuel, without GST, and then factors in the percentage of fuel in relation to total operating cost.

Common practice in the States is to use a baseline of $1 a gallon and add 1 per cent of the freight bill for every 10-cent-per-gallon increase in the published national average diesel price. If the average price in the United States is $1.76 (as it was in mid-May), the surcharge should be 7 per cent.

Or you can work out the actual difference in your own cost-per-mile. Using the fuel cost guidelines to the left, you can see the difference in cost between 60-cent diesel and 70-cent diesel at a realistic 6.5 mpg (U.S.): 34.9 versus 40.7, a difference of 5.8 cents per mile.

What do we use as a baseline? The FCA starts with 39 cents (bulk price), the price as of November 1995. The Yanks use a buck a gallon. So if we use 50 cents per litre, and you’re now buying retail fuel at 70-something per litre, then the surcharge needs to be around 11 cents per mile.

Keep your numbers realistic: no one will cough up more money for your inefficiency. Stay within reason, make a compelling argument, and you just might get what you need to weather these price hikes

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Jim Park was a CDL driver and owner-operator from 1978 until 1998, when he began his second career as a trucking journalist. During that career transition, he hosted an overnight radio show on a Hamilton, Ontario radio station and later went on to anchor the trucking news in SiriusXM's Road Dog Trucking channel. Jim is a regular contributor to Today's Trucking and, and produces Focus On and On the Spot test drive videos.

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