LM reader survey shows shippers prepping for increases in fuel prices

At one point earlier this year, it was easy to see that the average price per gallon of diesel on a weekly basis was in free fall mode. According to the Department of Energy’s Energy Information Administration (EIA), the week of February 23 marked the first time in 15 weeks that the weekly average saw a gain, with a mere 0.3-cent increase to $1.983 per gallon.

While a 0.3-cent gain may not register as a major increase, since that time diesel prices have been heading in one direction: higher. What’s more, diesel prices have cumulatively risen more than 40 cents since that late February report, with prices in the low $2.40 per gallon range at press time.

But while prices have increased, EIA data points out that these weekly prices, when compared to a year ago, have typically been down in the neighborhood of 40 cents to 50 cents annually. Even with these types of annual spreads, it’s safe to say that shippers are fully cognizant of these increases and the impact they can have on the bottom line, budgeting, and forecasting.

Shippers are vigilant in keeping a watchful eye on fuel prices, due to the fact that in most modes they’re paying a fairly high percentage in terms of their average fuel surcharge above standard base rates. That was made clear in the findings of a Logistics Management (LM) readership study of more than 200 buyers of freight transportation and logistics services.

According to the survey, 5.5% of respondents noted that average fuel surcharges were more than 20% above base rates, with 11.4% noting that they were 16% to 20% higher. We also found that 17.9% and 24.9% of shippers said they were in the 11% to 15% and 6% to 10% ranges, respectively, with 28.4% stating that their average fuel surcharges were 5% or less above base rates.

The recent weekly increases in diesel prices appeared to influence respondents’ views in terms of paying higher fuel surcharges in the future, with 59.3% saying that they expected to pay higher fuel surcharges to carriers in the coming months. But perhaps even more telling was the 60-40 split of respondents indicating that if fuel prices continue to rise they will raise or adjust freight budgets to cover higher than budgeted fuel prices, with 59.6% saying they will do so.

Of the 59.6%, 46.6% said the they would raise it by 1% to 5%, with another 42.2% saying it would be changed upward by 6% to 10%. Another 6% of respondents said that they would raise it by 11% to 15%, with 3.4% saying it would rise 16% to 20%.

As part of the survey, a housing products shipper told LM that rising fuel costs have had an impact on the bottom line—to a degree.

“We did have to budget for the increased cost of moving off of intermodal onto truckload, which cost us more than $1 million per year including the increased costs of fuel to do so,” he said. “Our average fuel surcharge per mile has increased from $0.13 per mile early in the first quarter to $0.21 today, so it’s had an impact on our cost. We anticipate it to continue at this level or slightly higher for the rest of the year and have adjusted our budget accordingly.”

According to Doug Waggoner, CEO of Echo Global Logistics, fuel surcharge tables have been engineered to really cover the impact of either rising or falling costs.

“As a 3PL and broker, we certainly do that,” said Waggoner. “We don’t make money on fuel, so what we charge is what we pass on to the customer. As a third party that buys purchased transportation and then sells it, that spread is our gross profit and that percentage of the gross profit and a percentage of total revenue, which is our gross margin. So when fuel comes down, it’s part of the denominator, though it makes our margin go up.”