The recent spike in fuel costs has yet again triggered another debate on the subject of fuel surcharges. A few weeks ago in Canada, the shutdown of an oil refinery resulted in shortages of gasoline at some gas stations and a jump in gas prices. The expectation by some was that when the refinery resumed full production, the cost of gasoline would come down. In fact, the opposite has happened.
On the National News in Canada last night, some motorists were interviewed after filling their gas tanks. It was interesting to observe their level of resignation and helplessness as they responded to the interviewer's questions.
The high cost of diesel fuel represents a major issue for transportation providers and shippers with no end in sight. Fuel surcharges have become the norm over the past decade. In a recent study on Transportation Buying Trends conducted by Canadian Transportation & Logistics magazine, 99% of LTL shippers and 100% of truckload shippers are paying fuel surchrages. This compares with less than 30% of shippers paying border detention charges and border security surcharges. In other words, fuel surcharges are now accepted by virtually all shippers. They are, in fact, the most widely accepted form of transportation surcharge throughout North America.
Is there anything that a shipper can do to manage and mitigate these charges? The answer is that every shipper must look at this issue from a strategic and tactical perspective.
Fuel surcharges are now a major component of freight costs. To mitigate these costs, a shipper must look carefully at its customers and its supply chain. To best serve its customers, does the company have its manufacturing facilities and DC's in the optimum locations vis-a-vis its vendors and customers. Rather than shipping costly LTL replenishment orders on a daily basis from a central DC or DC's, would the company be better off shipping truckloads of freight to DC's that are located closer to its customers. Would the increase or decrease in the level of service have a material impact on customer satisfaction and revenue growth? How would logistics costs, of which transportation costs are a large component, be affected. Would the decrease in freight costs be offset by an increase in warehousing costs? How would the company's prices be affected? Would customers pay a premium for superior service? Most importantly, what impact would a change in the company's distribution model have on its bottom line. This type of soul-searching analysis will likely take place on a more frequent basis as the cost of fuel continues its upward trend.
On a more tactical level, what can a shipper do to measure, manage and mitigate its fuel surcharges and freight costs? Here are a few suggestions.

1. You can only Manage what you Measure
One of our bloggers this past week suggested that we roll in the costs of fuel into the freight cost and look at fuel as an integral part of the total freight cost. Some of my clients do this. My preference is to keep fuel costs separate from the line haul cost. The fact is that there are a variety of other cost elements in freight transporattion including additonal deliveries, lumper fees, construction site deliveries and the like. In my view, it is important to maintain visibility of all your cost elements and manage them individually. If not, they become part of your cost base and never come out. You can only manage what you see and what you measure.

2. Do your Due Diligence
Many carriers post their fuel surcharges in their websites. They will certainly supply them to you as part of their rate proposals. Just like not all freight rates are the same, fuel surcharges can vary from carrier to carrier. Do you due diligence.

3. Benchmark your Fuel Surcharge Costs against other Shippers
For a fee, you can benchmark your fuel surchange costs against other shippers in the same or similar industries. By obtaining several readings, you can see where your company sits as compared to the range of fuel surcharges on the market.

4. Fuel Surcharges can be Negotiated
Carriers will negotiate their fuel surcharge. Don't forget that there is a cost recovery and profit generation component to the carrier's fuel surcharge. If you are armed with information on what fuel surcharges are available, you can negotiate a good deal for your company.

5. Fuel Surcharges can be Capped
Some carriers will agree to a cap on fuel surcharges. In other words, if the cost of fuel reaches a certain level and beyond, the carrier will cap the fuel surcharge. This will give you some additional cost certainty.

In summary, fuel surcharges are here to stay and are accepted by almost all shippers. There is still much each shipper can do to mitigate these costs by taking a strategic approach to your supply chain and from a tactical point of view, focusing on those activities that you can measure, manage and control.