How to Standardize Fuel Surcharges
More to the Story:
A wise person once stated that if you have two watches, you never know what time it is. When considering the effects of fuel surcharges on line-haul rates, this analogy is appropriate. If both are allowed to fluctuate, making sense of total freight spend and the intrinsic value of carrier relationships can be nearly impossible.
Leveraging freight spend in the carrier market is a common practice. Carriers that perform well want additional opportunities with desirable shippers to expand their fleets and improve operating models.
Over time, changes in both shipper and carrier flows improve procurement opportunities because carriers are looking for efficient freight. Visibility into an entire network creates better alignment opportunities.
Disparate fuel surcharges buried in contracts, however, are often difficult to manage for a few reasons:
- Freight rates are hard to compare internally because line-haul rates are not apples to apples.
- Freight rates are almost impossible to benchmark externally because there is no standard way to separate the influence of a fuel surcharge.
- Automated auditing ability is nearly impossible.
Shippers that have annual freight spend categories greater than $10 million may significantly benefit from standardized fuel surcharges. But they need a centralized procurement event and execution monitoring to level the playing field. This can be a daunting task if the overlying assumption is that fuel surcharges are individually negotiated to their lowest levels.