The change in FSC was intended to spread it all around so that customers who had contracts that would not pay could still get trucks to pick up their stuff.
I went back to my archives to do a little research. When I divide my fuel cost into revenue this is what I come up with.
2001......16.3%
2002......19.9%
2003......13.0%
2004......17.2%
2005......NA
2006......27.1%
2007......27.9%
2008......37.2% (to date)
In 2003 we upgraded to a unit that delivers 20% better fuel mileage or the figures would be much worse.
In order for those figures to have any real meaning you must remove the FSC from the equation. A surcharge is not revenue, as it is levied to directly offset a cost. Simply put, it's someone else's money, and it's someone else's cost, it merely passes through your hands.
With a FSC, the total fuel surcharge needs to be subtracted from total revenue to get to your actual revenue, and the fuel surcharge needs to be subtracted from the total cost of fuel in order to get at your actual fuel cost.
For example, 100,000 miles at 8 MPG is 12,500 gallons of fuel. At $2.00 a gallon that's $25,000.00 in fuel cost, and $0.25 per mile. For mathematical purposes, let's say revenue is $150,000.00. That makes the fuel cost 16.66% of revenue.
Fast forward to $4.00 a gallon fuel with the same 8 MPG and 100,000 miles, and it's now $50,000.00 in fuel cost. Because the FSC is figured to have the driver paying for fuel at a rate of $1.25 per gallon, for example, (which is even less than the $2.00 you were paying before), $4 per gallon minus $1.25 is $2.75 a gallon, divided by 9 MPG (some carriers use 9, some 10 or 11 for a straight truck) is $0.3055 per gallon FSC. Let's call it 31 cents.
So, you've had an average of $0.31 per mile in fuel surcharge, which totals $31,000.00 in FSC "revenue". If you add the FSC revenue to your $150,000.00 revenue you now have total revenue of $181,000.00. If you divide the $4 per gallon fuel cost of $50,000 into your total revenue, it looks like your fuel costs have jumped to 27.62% of revenue.
But the $31,000.00 FSC revenue isn't really revenue, it's a surcharge to offset the cost of fuel. So, you take that away from the total revenue to get back down to $150,000.00 in revenue, and you subtract the $31,000.000 FSC from the total cost of fuel of $50,000.00 to get $15,000.00 in actual fuel costs.
$15,000.00 in fuel cost divided by the actual revenue of $150,000.00 yields a fuel cost percentage of 10%, so your cost of fuel has actually gone down.
But for those who weren't expediting when fuel was $2 a gallon, and rates per mile were higher than they are now, and got into it when it was $3 gallon, a couple of comparisons to $3 a gallon and $4.80 a gallon fuel should be useful.
Let's say you're driving a diesel cargo van at Panther getting 15 MPG, and you do 75,000 loaded miles, and the revenue at $.77 a mile is $57,750.00 (for the sake of simplicity, I'm not including bonus, Empty Moves, deadhead pay, etc.). 75,000 miles divided by 15 MPG is 5000 gallons of fuel, times $3 a gallon is $15,000 in fuel (that's 20 cents per loaded mile in fuel to move the van). Let's say your FSC was $12,000 (which is an average of $0.16 per mile, times the 75,000 miles is $12,000). If you add the FSC to revenue you get $69,750 in gross revenue. Your $15,000 fuel cost divided by your gross revenue (which includes FSC) is 21.505%. Yikes!
But, keep in mind that it costs you 20 cents a mile to move the van, and the FSC is 16 cents, so you really only paid 4 cents a mile out of your loaded mile revenue to move the van.
Since the cost of fuel is directly offset by the FSC, you need to subtract the FSC from revenue, to get $57,750, and you need to subtract the FSC from your total fuel cost to get $3000 in out-of-pocket fuel cost expenses. In this case, $3000 divided by $57,750 is a fuel cost of 5.195%. Not 21.505% That's more like it.
Now go to $4.80 a gallon where it now costs you $0.32 per mile in fuel to move the van, and the same 75,000 miles and $57,750 revenue, and your total cost of fuel skyrockets to ($4.80 times 5000 gallons) $24,000.00. But your FSC was, say, $22,500 (which is $0.30 per mile). If you add that to the revenue of $57,750 you get $80,250 in gross revenue. $24,000 divided by $80,250 is 29.906% which makes it look like you're losing money, and a lot of it, compared to the 21.505% from last year.
But, when you take the FSC out of the equation (since your didn't earn or pay it), you need to use the loaded mile revenue of $57,750 and your own actual out-of-pocket fuel costs of ($24,000 - $22,500) of $1,500.00. And $1500 divided by $57,750 is 2.596%, which is even less than last year's 5.195%. Now yer talkin'.
The reason it's less is that with $4.80 a gallon fuel and it's costing you .32 per mile to move the van, and the FSC was .30 per mile, giving you out of pocket expenses of .02 per mile. Last year with $3 a gallon fuel it cost .20 per mile to move the van, and with the .16 FSC, your out of pocket was .04 per mile. So while fuel went up from $3.00 to $4.80, your loaded mile revenue stayed the same, and your out-of-pocket fuel costs went down, and you spent $.02 per mile less on fuel.
If you want to include the FSC revenue in the gross revenue, even though it's not revenue that you earned, and if you want to include the FSC in the cost of fuel, even though you didn't pay it, then every time fuel and the fuel surcharge goes up, so will your percentage of revenue. But that's only marginally meaningful to an owner/operator, as it is merely is an indication of just high the cost of fuel is at the pump and how much more customers are having to pay to ship their freight. But, for contractor, what it all comes down to is those few cents per mile that it actually costs you our-of-pocket, or out of loaded mile revenue, to move the van.
Obviously, these are simplistic figures that include loaded miles only, and do not include deadhead miles (the cost of, nor the revenue for), idling fuel usage, other costs and revenues, but they should give you a good idea how things work.
You can see now how a few miles per gallon here and there can really add up. If you are driving, say, a Sprinter getting 22 MPG, at $4.80 per gallon that's .22 per mile in fuel to move the van. If you're getting an average FSC of .32 per mile, there ya go, you're making 10 cents a mile off the FSC money. If you can do that over the course of 75,000 loaded miles that's a lot of money.
You can look at it as getting paid 77 cents a loaded mile plus 32 cents for fuel surcharge, which is $1.09 per mile in revenue, which makes the fuel cost nearly 30% of revenue, which is depressing, or you can look at is as making $0.87 cents a mile with
zero out-of-pocket expenses for fuel, which makes fuel costs zero percent of revenue, and let someone else be depressed about the high cost of fuel. Cause either way you look at it, you take home the same.
You can also see why getting every mile per gallon out of the fuel is critical now that fuel is so high. It's not because you want to keep the percentage of fuel cost to revenue down, as that doesn't matter since the FSC covers that, but once the FSC is removed from the equation, the amount of money it costs you in fuel to move your truck either goes into, or comes out of, your pocket. And your pocket could care less about percentages. It's all about how much coin ya got left at the end of the day.
If you can squeeze an MPG here, a MPG there, the FSC is gonna be the same. The difference is
your fuel cost,
your out of pocket cost. It's the out-of-pocket percentage of revenue that matters. The FSC, well, that's someone else's money, both when you get it and when you spend it. It doesn't matter how much money, or what percentage, the fuel pumps get fed, what matters is how much of YOUR money is being fed into the pumps. And if you can put less of your own money into the fuel pumps, you just might be able to keep some of that FSC money, too.
And all this just deads with loaded miles costs. Actual Cost Per Mile figures and additional revenues will be the real factor in making or losing money out here. But for fuel purposes, all that matters is how much of it you are having to pay for after you take out the surcharge for fuel.
My head hurts.
