Situation

Fuel surcharges as a margin generator?

ShipperCo has a large expense trucking its product to its customers throughout the US and Canada. ShipperCo knew there was an opportunity to lower this expense by competitively tendering their trucking needs.

In addition to assistance with ShipperCo’s upcoming tender using BidLanes©, Synaptic Decisions was asked to develop a fuel surcharge schedule that was not a margin generator for the truckers but a true cost pass through.

Approach

Compare implied fuel efficiency with benchmark data

Our approach was to:

  • Analyze the fuel surcharge schedules in its existing contracts and determine the implied fuel efficiency charged to ShipperCo.
  • Compare the implied fuel efficiency by lane to our benchmark data
  • Develop a fuel surcharge structure to take to the market in the tender process

Insights & Recommendations

Truth inducing fuel surcharge schedule

Even with a conservative assumption that trucks were going back empty, we determined that on average Shipper Co was being charged an implied fuel efficiency x% lower than benchmark.  As fuel prices rise, the value leakage from excess fuel surcharges becomes significant.

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A truth inducing fuel surcharge schedule was developed that took into account the bidders actual fuel efficiency and estimated empty haul miles.  If bidders do not disclose their true fuel consumption in the fuel surcharge schedule, they get hurt.

Results

30% reduction in fuel surcharges

A 30% savings in fuel surcharges were attained in addition to lower trucking rates from the BidLanes© tender process.