Fuel Surcharge Freight Expense Wildcard
by Mike Starling
Why Do We Continue to Have a Carrier Fuel Surcharge?
One of the Supply Chain’s most controversial expenses is the now-infamous fuel surcharge (FSC).
Recently, I was attending an industry trade-show educational session in which attendees in the room were asked, “How do you handle this added expense?” I was really shocked by the variety of answers. This particular industry segment literally has no standard approach to dealing with this expense. Some look to mitigate it by passing it along to the customer as a line-item charge on the invoice (customers are not thrilled!). Some bury it in the cost of goods sold, hoping the customer won’t complain about rising prices. Others look to negotiate a realistic rate with the carrier (an uphill battle). Still others look to offset the expense via fleet optimization (an interesting approach).
So, when did you get involved with your first FSC? 2003? 2004? And do you recall the original intent of the imposition of FSCs? Yep, rising fuel prices putting carriers at a disadvantage vs. the contract or list price rates they had in place with their clients eroding their profit margins (in spite of their regimented annual rate increase campaigns).
Now, don’t get me wrong. I am all for keeping carriers whole and ensuring that, like any business, they make a Fair Profit. But the reality turned out to be an every-carrier-for-themselves attitude, which resulted in NO Carrier Industry Standard for how FSC was calculated, much less charged to their customer.
Just for fun, I looked up the definition of Surcharge @ www.dictionary.com. They just reinforced my dim view of this continuing pain in the ass charge from the carriers. Consider the following:
sur·charge [n. sur-chahrj; v. sur-chahrj, sur-chahrj]Show IPA noun, verb, -charged, -charg·ing.
NOUN:
1. an additional charge, tax, or cost.
2. an excessive sum or price charged.
VERB (used with object)…LIKE FUEL for Example?
1. to subject to an additional or extra charge, tax, cost, etc. (for payment).
2. to overcharge for goods.
Related Words for Surcharge:
fleece, gazump, hook, overcharge, pluck (Carriers – No Offense Intended!)
OK, you can draw your own conclusion based on your own experience with your own carriers.
Question to ponder: why don’t carriers eliminate the fuel surcharge and adjust their rates to reflect the current cost reality of diesel fuel prices? And build that into their quoted rates?
But, think about this:
⦁ What is your take on the intent of the carrier charging FSC?
⦁ Do you know what FSC rate actually makes the carrier whole?
⦁ What is your peg rate?
⦁ Who is peg? (just kidding!)
⦁ Is your peg rate different from other industries’ peg rates?
⦁ Do you have a fixed FSC rate schedule?
⦁ Are you charged a rate per mile or percent of freight charge?
⦁ Does your FSC vary by carrier? Why?
⦁ What is the interval of rate increase for your FSC?
⦁ Do you negotiate what your FSC rate will be with the carrier?
⦁ Who’s zooming who when it comes to your FSC charge?
Bottom line. FSC can be a significant supply-chain expense. A good supply-chain coach can help you mitigate such an expense. Call one and increase your operational cash flow by reducing your FSC expense.
Want my opinion on why we continue to have a carrier fuel surcharge? Economic equality for carrier survival? Sure. But www.dictionary.com has an answer that is even more appropriate:
ig·no·rance [ig-ner-uhns]
NOUN:
the state or fact of being ignorant; lack of knowledge, learning, information, etc.
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