Bottom Line
Better Business
With fuel prices out of control, use a fuel surcharge to regain control of your bottom line

By Jami Jones
senior editor

As fuel prices skyrocket - with no end in sight - smart business decisions have become more critical than ever to survive in the trucking industry. This is just as true for owner-operators with one truck as it is for mega motor carriers.

Donald Broughton, a transportation analyst with A.G. Edwards, has tracked the number of failures in the trucking industry in relationship to fuel prices since 1986. The data he has turned up proves that point.

Case in point: Diesel averaged less than $1 per gallon in the first quarter of 1999. During that same quarter, 310 trucking companies with five or more trucks closed their doors. By the third quarter of 2000, fuel was averaging just more than $1.50 per gallon. More than 1,300 trucking companies with five or more trucks went out of business.

Regardless of the amount of the increases, fuel prices were obviously taking their toll on trucking companies.

"It used to have a much higher correlation because there were a number of companies who did not demand a fuel surcharge," he said. "Those companies are now gone."

Despite the fact that Broughton's data does not include owner-operators who have only one truck, the fact still remains that in order to be competitive in business today, truckers cannot eat the additional costs that high fuel prices are placing on their operations.

One disturbing factor he has identified is that there are still individual owner-operators who don't demand what the rest of the industry is getting paid.

"The rest of the industry not only gets paid a fuel surcharge, but has narrowed the gaps from a penny a mile for every 6 cents of fuel to a penny a mile for every 5 cents (diesel goes up in price)," he said.

"Nobody ever pays you more if you don't ask them."

Charging a fuel surcharge is a sound business decision. The sample letter and surcharge chart on these pages walk you through the steps toward implementing a successful fuel surcharge program.

The most effective fuel surcharge programs are based off the U.S. Energy Information Administration weekly reports on the average cost of diesel. Every Monday, except on federal holidays, the agency releases a report of the past week's average price of diesel, broken down by region.

Fuel surcharges can then be based off a load's originating region's average price of diesel. You can see the most recent price averages on OOIDA's Web page at ooida.com.

The accompanying grid shows what the surcharge should be depending on price ranges. The fuel price grid starts with a fuel surcharge of 1 cent per loaded mile with fuel prices at $1.16 per gallon. Fuel prices haven't been that low since early 2000.

The EIA is predicting fuel prices for this summer to remain at $2.50 or higher. That means most truckers need to be charging right around 28 cents per loaded mile on top of all other base charges for hauling the load. But remember, that amount changes every week, depending on the weekly EIA report.

Click here to read a sample letter you can use. It should be tailored to your individual business needs and policies. It will put your clients on notice that you need to be compensated for the additional costs of fuel and explains your surcharge calculation.

For customers who resist the surcharge, remember George Orwell's quote. Point out the obvious fact that fuel prices are a significant expense for your business and you can no longer operate at the same base rate with your expenses increasing.

Customers are in business, too. They know how to make a profit. Just don't let them continue to make a profit while you take the loss.

jami_jones@landlinemag.com

Aug/Sept Digital Edition