Fleets Seek Fuel Savings
High Prices Inspire New Look at Unpaid Miles
By Daniel P. Bearth, Staff Writer
This story appears in the April 14 print edition of Transport Topics.
Stung by the sharp rise in diesel prices, fleet executives are pushing to find new ways to stretch their fuel dollars and recover as much of their costs as possible.
After ordering a top-to-bottom review of fuel use at refrigerated carrier C.R. England Inc., Chairman Dan England said he was “shocked” to find that up to 20% of total miles were not covered by fuel surcharges.
Between January 2006 and March 2008, England said his company paid out $1.4 million for fuel used in trucks that ran without a load and for fuel used to power trailer refrigeration units.
Trucks idling during pickup and delivery burned additional fuel.
“I suspect that a lot of carriers do not really understand how much this is eating away at profits,” England said. “It’s devastating.”
England is hardly the only fleet executive who’s been rocked back on his heels by escalating fuel costs and the difficulties of getting shippers to share the added burden.
Werner Enterprises, one of the nation’s top dry van truckload carriers, said a 23.6% decline in earnings in the fourth quarter of 2007 was due in large part to the inability to raise rates to compensate for a 14-cents-per-mile rise in fuel costs.
“In the past, we met with our customers to obtain recovery for this shortfall in base rates per mile,” Werner said in its earnings report. “However, with the current weaker freight market, we have been unable to recover this shortfall.”
The inability to recover surcharges on all miles has led some carriers to take a closer look at how the surcharges are calculated: most are based on the shortest distance between origin and destination, rather than the actual miles trucks travel.
Lana Batts, a partner with Transport Capital Partners and a former president of the Truckload Carriers Association, said carriers don’t realize that surcharges cover only 75% to 80% of the fuel they use.
One factor, she said, is the difference between commercial mileage guides — the basis of most surcharges — and actual route miles, which are longer.
Differences in mileage calculations have become a “central point of controversy” in the debate between shippers and carriers over fuel surcharges, said John Larkin, an investment analyst with Stifel, Nicolaus & Co. in Baltimore.
“Most fuel surcharge mechanisms assume a base fuel cost, usually around $1.10 a gallon, that is subtracted from the weekly fuel price, currently near $4 a gallon,” Larkin said in a recent report to clients.
“In order to generate a fuel surcharge per mile that is compensatory, the differential — $2.90 a gallon — must then be allocated across the number of miles per gallon of fuel a truck can reasonably be assumed to achieve.”
Larkin said shippers and carriers must agree whether to include out-of-route or empty miles and engine idling into the calculation of fuel economy.
Tonn Ostergard, president of Crete Carrier Corp., Lincoln, Neb., said shippers that insist on using the shortest route miles are getting an unrealistic picture of fuel costs.
“The shipper can be lulled to sleep thinking the carrier is getting six and one-half miles per gallon,” Ostergard said. “But when you look at hub miles, it’s actually closer to five miles per gallon.”
Amy Krause, a consultant with Rand McNally, one of the companies that provide mileage programs, said many shippers pay carriers based on “short” miles, while carriers use “practical” miles that may reflect the quickest or lowest-cost routes.
Craig Fiander, marketing director for ALK Technologies, which publishes PC Miler, said the use of short miles can also lead to problems with drivers because their pay is based on miles.
England said his company is planning to ask for increases of between 3% and 8% on selected accounts to help cover unreimbursed fuel expenses.
“Raising rates will be a challenge,” he said, “but we have to get some help. Otherwise, this will inhibit our ability to provide service.”
Jon Isaacson, chief executive officer of Central Refrigerated Service, West Valley City, Utah, said some shippers have been willing to pay a separate surcharge for reefer fuel, but the rate is “nowhere near what it needs to be.”
An increasing number of shippers also are refusing to pay any surcharge for reefer fuel, he said.
Isaacson said it costs him $30,000 a day to power reefer units on approximately 2,600 trailers.
Peter Gatti, executive vice president of the National Industrial Transportation League in Arlington, Va., said most shippers want “transparency” from all freight carriers when it comes to calculating fuel costs.
“Carrier costs do vary,” Gatti said, “based on whether you are dealing with owner-operators buying fuel at retail or a fleet operator buying fuel on a long-term contract. It’s not comparable from one carrier to another.”
This story appears in the April 14 print edition of Transport Topics.
Stung by the sharp rise in diesel prices, fleet executives are pushing to find new ways to stretch their fuel dollars and recover as much of their costs as possible.
After ordering a top-to-bottom review of fuel use at refrigerated carrier C.R. England Inc., Chairman Dan England said he was “shocked” to find that up to 20% of total miles were not covered by fuel surcharges.
Between January 2006 and March 2008, England said his company paid out $1.4 million for fuel used in trucks that ran without a load and for fuel used to power trailer refrigeration units.
Trucks idling during pickup and delivery burned additional fuel.
“I suspect that a lot of carriers do not really understand how much this is eating away at profits,” England said. “It’s devastating.”
England is hardly the only fleet executive who’s been rocked back on his heels by escalating fuel costs and the difficulties of getting shippers to share the added burden.
Werner Enterprises, one of the nation’s top dry van truckload carriers, said a 23.6% decline in earnings in the fourth quarter of 2007 was due in large part to the inability to raise rates to compensate for a 14-cents-per-mile rise in fuel costs.
“In the past, we met with our customers to obtain recovery for this shortfall in base rates per mile,” Werner said in its earnings report. “However, with the current weaker freight market, we have been unable to recover this shortfall.”
The inability to recover surcharges on all miles has led some carriers to take a closer look at how the surcharges are calculated: most are based on the shortest distance between origin and destination, rather than the actual miles trucks travel.
Lana Batts, a partner with Transport Capital Partners and a former president of the Truckload Carriers Association, said carriers don’t realize that surcharges cover only 75% to 80% of the fuel they use.
One factor, she said, is the difference between commercial mileage guides — the basis of most surcharges — and actual route miles, which are longer.
Differences in mileage calculations have become a “central point of controversy” in the debate between shippers and carriers over fuel surcharges, said John Larkin, an investment analyst with Stifel, Nicolaus & Co. in Baltimore.
“Most fuel surcharge mechanisms assume a base fuel cost, usually around $1.10 a gallon, that is subtracted from the weekly fuel price, currently near $4 a gallon,” Larkin said in a recent report to clients.
“In order to generate a fuel surcharge per mile that is compensatory, the differential — $2.90 a gallon — must then be allocated across the number of miles per gallon of fuel a truck can reasonably be assumed to achieve.”
Larkin said shippers and carriers must agree whether to include out-of-route or empty miles and engine idling into the calculation of fuel economy.
Tonn Ostergard, president of Crete Carrier Corp., Lincoln, Neb., said shippers that insist on using the shortest route miles are getting an unrealistic picture of fuel costs.
“The shipper can be lulled to sleep thinking the carrier is getting six and one-half miles per gallon,” Ostergard said. “But when you look at hub miles, it’s actually closer to five miles per gallon.”
Amy Krause, a consultant with Rand McNally, one of the companies that provide mileage programs, said many shippers pay carriers based on “short” miles, while carriers use “practical” miles that may reflect the quickest or lowest-cost routes.
Craig Fiander, marketing director for ALK Technologies, which publishes PC Miler, said the use of short miles can also lead to problems with drivers because their pay is based on miles.
England said his company is planning to ask for increases of between 3% and 8% on selected accounts to help cover unreimbursed fuel expenses.
“Raising rates will be a challenge,” he said, “but we have to get some help. Otherwise, this will inhibit our ability to provide service.”
Jon Isaacson, chief executive officer of Central Refrigerated Service, West Valley City, Utah, said some shippers have been willing to pay a separate surcharge for reefer fuel, but the rate is “nowhere near what it needs to be.”
An increasing number of shippers also are refusing to pay any surcharge for reefer fuel, he said.
Isaacson said it costs him $30,000 a day to power reefer units on approximately 2,600 trailers.
Peter Gatti, executive vice president of the National Industrial Transportation League in Arlington, Va., said most shippers want “transparency” from all freight carriers when it comes to calculating fuel costs.
“Carrier costs do vary,” Gatti said, “based on whether you are dealing with owner-operators buying fuel at retail or a fleet operator buying fuel on a long-term contract. It’s not comparable from one carrier to another.”
