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Insights on fuel surcharges from our Shipper-Carrier Rountable

The rise in fuel prices has once again brought the issue of fuel surcharges into focus. <br>


The rise in fuel prices has once again brought the issue of fuel surcharges into focus. <br>
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The best way for shippers and carriers to deal with high fuel costs was one of the many issues tackled by the shipper and motor carrier executives participating in our first annual Issues Roundtable, sponsored by Shaw Tracking.<br>
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Participating in the Issues Roundtable were Serge Gagnon; President, XTL Group of Companies; Rob Penner, Vice President, Operations, Bison Transport; Dan Einwechter, President, Challenger Motor Freight; Julie Tanguay; President, L.E. Walker Transport; Neil McKenna Director, Transportation Operations, Canadian Tire Retail; and Bob Ballantyne, President, Canadian Industrial Transportation Association. Lou Smyrlis, Editorial Director of BIG Transportation Media, moderated the roundtable.<br>
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Following are our panelists comments on fuel surcharges. <br>
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Smyrlis: Pricing has been a particular concern in recent years. The high cost of fuel and the subsequent fuel surcharge passed on to shippers has been a significant contributor to those costs. Most shippers accept the need for a fuel surcharge. Is the current fuel surcharge system the most fair and efficient for both sides or is it wise to consider alternatives?

Gagnon: This is not a moneymaking scheme. It covers the cost of the base we started from about 1999. Its not a perfect system but it would be too hard to get out of it across the industry. There are some months where you make more money off the fuel surcharge, for example during the summer because your miles per gallon fuel consumption are better. Some months it is costing us more. Right now we have lost 1 MPG because of the winter. Empty miles which are not paid for are also a factor. So there are a lot of things to take into consideration and we do have to recover our fuel cost increases. It may not be a perfect system month to month but it all works out in the end.

Einwechter: Its not perfect but its the least offensive of the options.

Smyrlis: Bob I know the CITA has looked at different alternatives, although it has not come out in favor of any particular alternative.

Ballantyne: I think there are a lot of differences of opinion among the shipper community but there are some shippers who think that the idea of a fuel surcharge as a percentage of the freight rate isnt necessarily the best way to do it and that a mileage-based or ton-mile surcharge may be better. But I think to make a change that satisfies everybody will take a fair amount of research and analysis. Im not sure if the current approach is the best way but maybe its the best of a bunch of imperfect ways.

McKenna: From a private carrier perspective we are well aware of the impact that fuel pricing has on the cost of our operations. I think that shippers should take the time to educate themselves on what exactly that cost represents for their carriers. It will probably be the second most expensive component in the quote that they receive and represents anywhere from 20% to 30% of their freight costs. And if that cost goes up 50% then you know that you need a 10% to 15% increase for the carrier to remain whole. It shouldnt be complicated but I think what happens in some cases is that you start getting that fuel surcharge on the freight rate, which includes a whole bunch of other accessorials and not just the base rate, and then you are overpaying your fuel surcharge. Some carriers look at the freight surcharge as a revenue line rather than a cost recovery line. The fuel surcharge formula works and if the shipper does his homework he will negotiate the cost of fuel increase to the base rate as soon as possible. If you are dealing with a surcharge outside your base rate, you have a cost not subject to your negotiation strength and in all likelihood, you are subsidizing your competitors.


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