Freight Trucking & Fuel Surcharges: Best Practices to Mitigate and Manage
The trucking industry is very volatile, especially considering the constant ups and downs of the fuel price. A trucking company could run into a lot of trouble with extremely high costs that impact the business's profitability if the pricing does not reflect this volatility. One strategy these trucking companies use to protect themselves is fuel surcharges. This way, the business can absorb the fuel price increase between the quotation and the freight or shipping operation.
Although it is a necessary evil for the trucking industry, it can get out of hand, putting undue pressure on customers. In this article, we will explore best practices for mitigating and managing the situation.
Fuel is the most important raw material in a shipping operation and the most volatile in terms of its pricing. This is why fuel surcharges are crucial. A fuel surcharge is an additional amount in a trucking quotation that allows the trucking company and carrier some wiggle room to operate if the fuel price increases between the quotation date and when the actual shipping takes place.
The freight fuel surcharge is not a universal amount. It could vary depending on several factors, including the distance that will be covered, the current trucking market price of fuel and trends, and the published fuel surcharge rate. In many cases, the fuel surcharge takes a percentage of the overall quotation and may vary depending on the factors listed.
The primary economic reason behind the fuel surcharge is to protect freight and trucking companies from fuel price volatility, which could potentially lead to huge losses and poor customer experience. With the fuel surcharge, these companies don’t have to worry about oil prices and government regulations such as fuel taxes impacting their freight operations. It allows them to factor in the different fuel prices across different regions in the country.
Fuel surcharges are supposed to share the impact of fluctuating prices evenly between the customer and the carriers. However, bad actors in the trucking industry can take advantage of these to make customers pay for more their fair share of the bill, leading to frustration and unhappy customers.
Although the fuel surcharge is a necessary evil in the trucking industry, bad players can use it to game the system and impose unnecessary cash responsibility on customers. Conversely, if well-intended carriers do not adjust the rates quickly enough, it can cause many problems, including cash flow.
The fuel surcharge has to serve either or both parties effectively to succeed. But how? Here are six strategies that shippers can leverage to ensure they are on the right side.
It is critical to partner with logistics providers that prioritize operational efficiency. Efficiency will reduce costs and improve the productivity or outcome of the shipping operation. To achieve efficiency in the trucking operation, there has to be a culture of continuous improvement and a focus on leveraging technology solutions like route planning and tracking systems.
When searching for efficient partners, it is essential to focus on those who implement regular vehicle maintenance, sophisticated driver training, and optimized routing to significantly reduce fuel consumption.
Lack of sustainability is a deal breaker for many customers, leading them to partner with logistics providers and carriers that adopt innovative fuel solutions like biodiesel and incorporate advanced technologies such as aerodynamic truck modifications.
It facilitates reduced fuel charges and ensures the business is doing its best to minimize the impact of its operation on the environment. This leads to profitability and enhanced customer experience. Electric vehicles are good alternatives to fuel solutions but may not be able to reduce costs for shippers and carriers.
It is essential to consider strategic partnerships and negotiations when partnering with logistics providers. Strategic partnerships offer a way for logistics providers to reduce the cost of trucking due to economies of scale. If the carriers are sure of long-term business, they must be transparent in their collaborations.
Strategic negotiations are an approach that allows parties to take certain liberties and explore clauses such as a cap or manage fuel surcharges. This approach will ensure predictable shipping costs and shield shippers from fluctuating fuel prices.
The fuel surcharge is supposed to shield against fuel prices' unpredictability and other factors that could lead to their increase. But what if fuel prices were less unpredictable? This would certainly help impact the cost of fuel and, therefore, the cost of trucking operations.
To ensure this predictability, it is essential to leverage sophisticated forecasting solutions and tools to accurately predict changes in fuel prices and surcharges. This would enhance the planning and allocation of resources to ensure streamlined shipping at more predictable costs.
To implement advanced forecasting techniques, it is essential to ensure they cover all the variables, including the complicated factors that will impact fuel pricing. If this is done correctly, the next step will be to integrate the forecasting solution into the financial planning facet of the business to manage budget impacts effectively.
Various carriers will have and implement different fuel surcharge policies. It will also be the case with other aspects of their business. For shippers to effectively navigate these policies, they must thoroughly understand what they entail and the factors informing the fuel surcharge policy.
This will allow shippers to use the knowledge to negotiate terms that help mitigate and properly navigate these policies for the most effective results across shipping operations.
Transparency is key to effective collaboration between carriers and shippers. It allows everyone to be on the same page about safety and pricing concerns. For the fuel surcharge, transparency helps establish clear practices for passing through charges to clients. It also ensures that the fuel surcharge aligns closely with budget and expectations while clearly outlining reasons for exceeding the planned costs.
Effective collaboration allows carriers, shippers, and other stakeholders to work together seamlessly and ensure transparency across trucking or shipping operations. With A.N. Webber, you have a company eager to ensure the most efficient shipping operation, which includes lower costs and better outcomes.
A.N. Webber offers opportunities for shippers to partner with us to develop unique shipping strategies that effectively manage fuel surcharges through shared planning and innovative logistics solutions. The company is heavily leveraged in technology, which means better access to solutions, expertise, and innovative platforms (including our tech stack) that anticipate fuel cost fluctuations and proactively implement strategies that will hedge against them.
Our commitment to transparency in fuel surcharge calculations means we work with carriers that are clear about their rates. This allows us to help shippers take advantage of tailored strategies that specifically address their shipping needs and minimize the impact of fuel surcharges.
Fuel surcharges can be confusing and, in many cases, allow bad players and carriers in the trucking industry to take advantage of shippers. It is essential to take steps that will mitigate these opportunities and ensure that the entire process is as transparent and seamless as possible. The strategies mentioned in the article will come in handy. Get a quote today.
Each solution is designed to meet your unique needs, ensuring efficient, reliable freight management no matter the size or scope of your operation.
