First, most big trucks run on diesel fuel, commonly referred to as just "fuel." Second, fuel cost is (or should be) figured into any good business plan when fuel is consumed in the course of doing business, but fuel is not a fixed price. When you sell widgets, and it takes one thingamajig per widget, you can account for that and price accordingly. But, in trucking, it's more complicated than that. Fuel price fluctuates throughout the day, not just the week or month. MPG, or how much fuel is burned per mile, also varies with other variables such as wind, temperature, load weight, length of haul, time length of shipment, whether the load is refrigerated or not, driver pay, as well as other variables. Shipping rates are usually set in what's called a Tariff. That's a trucker contract where the trucking company agrees to haul loads from A to B for either a flat rate or a rate per mile. These are in place so that no negotiation has to take place for each shipment. The shipping department of the manufacturer simply calls the trucking company and asks if the trucker has "capacity", or the ability to haul another load. If so, then the load or order is "booked" and appointment times are set for loading and subsequently for delivering. But what about when the price of fuel jumps up $.15 in a week? The trucking company has already figured fuel prices to be around $2.00 per gallon, and now they have to pay $2.15 per gallon. That cuts into the truckers profits, which are normally $.01 to $.20 per mile.
Now the trucker is not going to work for no profit, but the shipper doesn't want to put a shipping clerk in charge of negotiating shipping rates on every shipment, so both companies agree on a "fuel surcharge" schedule. These are typically laid out like so... The base price of fuel is set at, let's say, $2.00 per gallon. An avg MPG is stated: let's say 5 MPG. Then a table is laid out stating how much $ per mile will be added as a fuel surcharge for each $ increase (and sometimes decrease) in the price of fuel. So maybe for every $.05 increase in fuel price, $.01 is added to the rate per mile for shipping. Still with me?
So the truckers get extra $ when the fuel price goes up, but how much? Look at the table: for every $.05 increase in fuel price, $.01 is added to the shipping rate. So the trucker says they paid $2.50 for fuel, and the shipper says "no way! It was only $2.04 here." Argument ensues, and they finally decide that the fuel prices should be based on the average price paid by all fuel purchasers for that period. Fine, but wait....How do you figure an average? During the period... or after the period, when you have all the data? Right, after the period is over. So fuel goes from $2.00 to $2.05 in a week. The trucker ends the week buying fuel for $2.05 per gallon. Starting next week, the average price of diesel fuel will be $2.025, so according to the fuel surcharge schedule, the trucker does not get any increase becuase the fuel price has not yet gone up a full $.05. No biggy, right? Keep hauling and quit whining!
Now fuel for this week goes from $2.05 to $2.10. Next week the average will be released from the Department of Energy saying it was $2.075, the trucker will be paying $2.10, and he'll bill a fuel surcharge of $.01. See where this is going?
In my opinion, truckers who rely on fuel surcharges to keep them profitable are allowing their customers to set their rates. I'd love to go to Walmart and tell them I know how much it costs to make a DVD so I'm only going to pay a few cents more than that. This is what trucking companies are allowing when they accept fuel surcharges as quick fixes to long term problems.
In the end, the fuel cost is passed along. But that's only after shippers use up all of the truckers who don't know exactly what they should be charging per mile (every day) to haul a load. Once those truckers are all used up and have had to give up their truck(s), the truckers who watch their bottom lines closely will still be in business, will be in higher demand (because of lowered capacity from other truckers going out of business), and will haul loads for the highest bidder. Those high bidders will have to absorb or pass on that cost to the consumer in the end, but it will be 6 months to a year before the real punch is felt by consumers. IF you want to know how the economy is going to be doing in 6 months, look at the trucking sector today.
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