Join Paul Beavers, Chief Technology Officer, and Kyle Puryear, Lead Demo Engineer, as they lead you through the why and how of using fuel surcharge management to stay on top of profitability.
Transcript
Hello, and thank you for taking time out of your day to learn more about optimizing profitability with fuel surcharge management.
This morning, our CTO, Paul Beavers, and our lead platform engineer, Kyle Prier, will lead you through the why and how of using fuel surcharge management to help you stay on top of your profitability while fuel prices are skyrocketing.
Just a few housekeeping items. We will have the audience on mute to maintain a high-quality experience for all of our attendees. Should you have a question, please type it into the chat window and we will review them after the demo portion of this call. Again, thank you for spending some time with us.
With that, I would like to introduce Paul Beavers, our CTO. Paul.
Thank you, Amanda, and thank you all of you for taking time out of your busy schedule to hear us talk about some of the challenges you face related to the rising cost of fuel.
We don’t have to tell you about the rising cost of fuel. You know it all too well. Average diesel prices are up $2.32 over the last 12 months. That means that basically in May of 2021, the price per gallon was about $3.23, and just in May of 2022, over $5.71 per gallon.
Recently, I read an article in the Houston Chronicle that talked about how carriers are starting to park some of their rigs waiting for the price of fuel to come down so that they can run more profitable loads. In other words, higher fuel prices have made some lanes unprofitable for carriers.
Not only that, the second part of this challenge is the slowing of the economy. The economy has recently slowed and it is showing up in the rate that you, our carriers, get for spot loads. So, for example, what you see on the screen is that the rates have declined by 30 percent over the last five months. According to Freight Waves, this is putting more and more pressure also on contract rates just simply because overall demand is coming down. The phrase 100 days of summer is used in the trucking industry to describe the time of year, that wonderful time in summer, when beverages and construction, and all summer goods are on the surge. However, this year, due to the slowing economy, the market is doing just the opposite.
So, what are you going to do to try to improve the overall profitability, during this tough time with these two opposing forces?
Simply put, every time that the price of diesel increases by $0.10 a gallon that your cost of fuel for running loads basically goes up almost $0.02 per mile. In other words, the average fuel cost per mile has gone up over $0.39 in the last 12 months. So what we want to do is talk to you about a way that can help you offset these costs.
Fuel surcharges are basically your ability to pass on some of this pain and some of this expense to your customer. A fuel surcharge is an additional fee added to a shipper’s freight bill above the current contract rate. These fuel surcharges kick in when the cost of fuel exceeds a certain level.
Incorporating fuel surcharges has become an accepted practice and it all started back in 2005 after Hurricane Katrina hit New Orleans and that caused a lot of challenges in the gulf which drove the price of diesel up back then. And that’s when we first saw fuel surcharges.
Today there’s no rules or regulations mandating or preventing fuel surcharges. So the question is, are you charging fuel surcharges today? And two, what can you do actively in the PCS Transportation Management Platform to be able to automatically add these fuel surcharges to your line haul rates so that you’re not having to put undue burden on all the accounting and all the systems. You want to do it automatically and you want to do it in a consistent manner.
So what I’m going to do now is I’m going to hand it over to my friend Kyle, who is our lead platform engineer, who is going to take you through some details on how fuel surcharges work in the PCS platform.
Thank you, Paul. Well, before we take a look at the TMS, we’re going to go over a few ways that fuel surcharges can be applied within the TMS.
In either method, they are based on national or regional prices published each week by the DOE and then imported into the TMS. Your first option or first method is the formula method which takes the Department of Energy fuel price minus the fuel cost baseline and divides that by the average miles per gallon. To break that down a bit, the Department of Energy fuel price, again, it’s based on the national or regional fuel price published by the DOE. Your fuel cost baseline, which takes your fuel price per gallon at which fuel surcharges apply, and then you have your average miles per gallon, which represents your fleet miles per gallon. And all of this is within the help system as well, once you’re setting this up, and we’ll guide you through an example.
And pricing table is your second method, which uses a table of fuel price values to determine the amount of the fuel surcharge. When that fuel surcharge is calculated, pricing from the DOE is compared against your table to arrive at the per mile surcharge amount.
And this can be set for each individual load class, whether truck load, LTL, intermodal, or all of the above. And along with that, your customers can have custom rates. So, with that being said, we’ll guide you through the actual setup and implementation within the TMS. And that begins by going into System Setup, and setting up your fuel surcharge under Matrices.
Simply click Fuel Surcharge, and Add New, where you’ll enter the matrix name. Methodology, whether formula or pricing table, as previously discussed. And your rate type, which is by the miles, which are your build miles within the load, or by a percentage of the line haul. We’ll take a look at a few tables that we’ve already set up and break that down.
We’ll start by looking at a fuel surcharge based on a pricing table. And we’ll work our way down to define each setting. Here we have our basic requirements here at the top. And you have update pricing index, which specifies the interval at which the DOE is queried for pricing data, whether weekly or monthly.
Weekly indicates that data from each weekend download is used and monthly indicates that data to use is recorded as of that data release on the first of the month. Pricing takes effect. That’s going to specify the delay between the day the new price is downloaded and the day that it’s used. And then lastly, you can set that to be based on a national price, or the national price, or the pickup region price, based on where the load picks up.
Here we’ll input our high amounts in your first column, and your rates for each respective load class, whether truck load, LTL, or intermodal. So if those are enabled, you’ll see a few additional columns here.
Next, we’ll take a look at the formula methodology, and you’ll follow the same steps as addressed before, and then you have your fuel cost, baseline, and your average miles per gallon.
So once you have your table set up, you’ll want to add that to an accessorial rating code, that way that can be picked up when you’re booking your loads. We’re going to add that to our 110 standard matrix. Which you should see, as each customer can also have their own matrix as well. You can also create new matrices in the bottom left-hand corner.
We’ll take a look at the 1-10 standard, and as you can see, we have our description, your GL account, calculate by needs to be set to fuel matrix, and then you’ll enter your matrix as set up in the previous steps. So that’s all there is to it. You can leave the rate blank. as it’s going to pull your rates from your table or your formula.
And if you want this to automatically be added to customer profiles, just be sure to add this little checkbox under auto. So each time that you create a new customer, it’s going to add that charge to automate the fee for you. If you’re going to pass that to the driver or carrier or pay the driver or carrier, be sure to add that to your accessorial pay, depending on how many offices that you may have.
And all that you have to do is simply link it in the drop-down menu under the accessorial name column, set your rate, which could be a flat amount or percentage of the charge itself or percentage of the dispatch pay. And that’s all there is to it.
Once it’s set up, if you’d like the system to automate that as you’re booking your loads, you can add that as an auto charge within the customer profile.
We’ll take a look at Act pipe and supply here.
And within the customer profile, simply click setup charges and link the charge. In this way, each time that you book a load, it’s automatically going to add that for you. We’ll take a look at that in action.
And as you can see within our load, we’re going to clear this out. And once I put that customer in, you’ll notice it’s going to automatically add that charge. And there you go.
And again, that’s going to be based on the national price, or the region price, while cross checking that pickup date, and looking at the load class.
If you want to keep your customer in the loop on that accessorial, you can also send them an accessorial notification if you require sign off. And this is all handled through our e-signature integration, so it’s all paperless. Your customer can sign this electronically. And once signed, it’s automatically going to attach back into your load record and to the customer freight tracking portal and to the customer invoice. So no need for manually indexing that documentation, it’s all automated for you.
And one last tool to discuss, once that load has been arrived, be sure to use our perform audit tool to make sure you have the appropriate documentation as far as that accessorial notification. And also make sure that the assessorial for your fuel surcharge is rated accordingly.
Once you choose the load and check perform audit, that’s just going to double check to make sure that you’re not missing any documentation, including that notice of that assessorial charge. And it’s also going to re rate that load just to make sure that it’s rated based on the appropriate pickup date, if any changes were made prior to. And that’s all there is to it.
So in summary, why fuel surcharges? Well, simply the increase in diesel prices, your average fuel cost per mile going up 39 cents in the last 12 months, and it allows you to automate recovery of your fuel cost as that increases. How do they work? It’s based on the national or regional prices published each week by the DOE.
And you have two methods to choose from, formula or pricing table. You can set rates according to class and rates according to customer. And to get started, you simply set up your matrix, link it to an accessorial rating, and set it within an accessorial charge within your customer profile to automate the process.
And with that, we’ll pass it back to Amanda.
Alright, thank you so much, Kyle. We have just a couple questions chatted in, so the first one, can I apply fuel surcharges for all types of loads, truckload, LTL, and intermodal?
Yes, Amanda, if you have multiple classes enabled within the TMS, when you’re setting up your fuel surcharge table, you can set up for truckload, LTL, or intermodal. So you’ll see three separate columns.
Great. Thank you. And if I’m already using the PCS platform, is this capability included?
Absolutely. This is included within the TMS. You simply need access to system setup and matrix management to set up your fuel surcharges and your accessorial rating codes to get started.
All right. Well, thank you guys so much for joining us today. Thank you for your questions. This webinar was recorded and will be available on our website for you.
Thank you and have a great day.
