CharlesD
Expert Expediter
What was the fuel surcharge originally implemented for? I always thought it was supposed to be a separate bit of money passed through to the purchaser of the fuel, but here's what is happening out there.
The people who have the freight, with the exception of NLM and a couple others, are asking for all inclusive pricing when a carrier quotes on freight. You would think that when the fuel goes up and the surcharge goes up, the owner operator should get more money with the higher surcharge and the carrier should still make their profit, but that isn't what is going on. Let's say for sake of argument that the current going rate for brokered cargo van loads, and I'm talking bid board stuff not what we can get from better sources or customers, is around $1.10 a mile all in. Sometimes you're lucky to get that, but just for example we'll put it at that. Now let's just say for the sake of easy math that the FSC was .20 a mile. A load pops up on NLM and it has the surcharge and tariff listed separately. For those who don't know, if you just put a yes bid in there you get it at your set tariff plus the FSC, but you can put a spot bid in there for any different amount and if you get the load the FSC will be added. So a carrier figures out their total bid at $1.10 and separates the FSC from that total figure and puts the resulting figure of .90 cpm in the spot bid field, so the load will pay $1.10 after the FSC is added. Now a week later fuel skyrockets and let's just say for easy math that the FSC jumps up a dime. Now that same carrier sees another load on there and still has it in their heads that cargo van loads are going for that same overall rate. This time .80 is put in the spot bid field so the load is still bid at $1.10 when the FSC is added.
In this example, the FSC is higher but the overall rate to the carrier is still the same. The problem is that the driver is expecting more money because of the FSC being higher. People aren't bidding the same linehaul when the FSC goes up. They're still bidding the same all inclusive rate that they were before. Now it's not as bad with the straights, but it's getting to the point that if a carrier is passing the FSC through but not bidding higher when fuel goes up, that there's really no way to make a profit on a cargo van load.
I'm not sure what can be done about this because there's always going to be some numbskull who will bid lower just to secure the freight, but when fuel goes up, someone is going to be losing money. In an ideal world, the driver should get more money when fuel goes up but the carrier shouldn't have that coming out of the profit on the load. Margins are really tight on the smaller units as it is. I don't really know how the situation could be improved unless you mandated that the FSC is a complete pass through and at the same time put a floor on how low people could bid on the loads, but that would have to be at the discretion of the broker or 3PL since legislating it would be not only extremely difficult but also a major case of over regulation. So what's the answer? Do carriers just have to eat it when the fuel is up or just pay the drivers a flat percentage of the total rate, which means the drivers have to eat it when fuel is up? The linehaul should be at a profitable rate for everyone with the FSC being a complete pass through to offset higher fuel costs, but it's not being treated that way by anyone.
The people who have the freight, with the exception of NLM and a couple others, are asking for all inclusive pricing when a carrier quotes on freight. You would think that when the fuel goes up and the surcharge goes up, the owner operator should get more money with the higher surcharge and the carrier should still make their profit, but that isn't what is going on. Let's say for sake of argument that the current going rate for brokered cargo van loads, and I'm talking bid board stuff not what we can get from better sources or customers, is around $1.10 a mile all in. Sometimes you're lucky to get that, but just for example we'll put it at that. Now let's just say for the sake of easy math that the FSC was .20 a mile. A load pops up on NLM and it has the surcharge and tariff listed separately. For those who don't know, if you just put a yes bid in there you get it at your set tariff plus the FSC, but you can put a spot bid in there for any different amount and if you get the load the FSC will be added. So a carrier figures out their total bid at $1.10 and separates the FSC from that total figure and puts the resulting figure of .90 cpm in the spot bid field, so the load will pay $1.10 after the FSC is added. Now a week later fuel skyrockets and let's just say for easy math that the FSC jumps up a dime. Now that same carrier sees another load on there and still has it in their heads that cargo van loads are going for that same overall rate. This time .80 is put in the spot bid field so the load is still bid at $1.10 when the FSC is added.
In this example, the FSC is higher but the overall rate to the carrier is still the same. The problem is that the driver is expecting more money because of the FSC being higher. People aren't bidding the same linehaul when the FSC goes up. They're still bidding the same all inclusive rate that they were before. Now it's not as bad with the straights, but it's getting to the point that if a carrier is passing the FSC through but not bidding higher when fuel goes up, that there's really no way to make a profit on a cargo van load.
I'm not sure what can be done about this because there's always going to be some numbskull who will bid lower just to secure the freight, but when fuel goes up, someone is going to be losing money. In an ideal world, the driver should get more money when fuel goes up but the carrier shouldn't have that coming out of the profit on the load. Margins are really tight on the smaller units as it is. I don't really know how the situation could be improved unless you mandated that the FSC is a complete pass through and at the same time put a floor on how low people could bid on the loads, but that would have to be at the discretion of the broker or 3PL since legislating it would be not only extremely difficult but also a major case of over regulation. So what's the answer? Do carriers just have to eat it when the fuel is up or just pay the drivers a flat percentage of the total rate, which means the drivers have to eat it when fuel is up? The linehaul should be at a profitable rate for everyone with the FSC being a complete pass through to offset higher fuel costs, but it's not being treated that way by anyone.
