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Fuel Cost
By:
Tray Anderson
Overview
The past two years have been very volatile in the
truckload industry. Industry-shifting changes have
occurred which drove imbalance in the market and
generated the current market position that has placed
transportation providers in their strongest bargaining
position in a decade. 1) The DOT implemented a new
hours-of-service requirement that reduced the number of
hours a driver could be on the clock. 2) The EPA
mandated a new engine requirement that decreased engine
fuel efficiency and increased maintenance cost 3) Fuel
costs increased dramatically 4) Large shippers began
implementing new supply-chain strategies that drive more
store-direct shipments 5) Several natural disasters
created unplanned demand paying very high rates further
decreasing available capacity. Shippers started looking
to rail and intermodal providers for alternatives,
greatly increasing demand in those modes. This market
motivated forward-thinking transportation providers to
drop their long-held cost plus margin model and adopt a
market-demand pricing model leading to double-digit
price increase proposals becoming the norm.
Fuel Cost
Diesel cost was relatively flat from 1994 – 2002. Over
the past three years, Diesel has more then tripled.
Many shippers simply do not account for this cost in
their pricing models and are not able to mitigate
fluctuations in diesel pricing. For a 1000-mile
shipment, the fuel cost has increased from $174 to $522
from 2002 to 2005. At $1.50 mile, this is a 23%
increase. If the shipper did not have a compensatory
fuel program, the carriers were forced to implement a
significant cost increase. Additionally, unless the
shipper had implemented a program to pass this cost
along their supply chain they realized an unplanned
material impact to margins.
Fuel Surcharge Impact Mitigation Companies can
mitigate the impact of fluctuating fuel prices by
passing the cost on to their customers in the form of a
fuel surcharge. Depending on the systems utilized to
bill the customers and customer sourcing decisions this
surcharge can take several forms. Some clients seek to
recoup cost in every step of the supply chain, not just
the final delivery to the customer. Additionally, some
clients have used the fuel surcharge for generating
additional profit by charging an amount in excess of the
actual charges paid. Here is a summary of options:
1) Straight pass-through of actual charges
Pros: a) Covers actual surcharge b) Charges
billed in direct proportion to their cost
Cons: a) Systems must be able to execute
2) Flat percentage of invoice
Pros: a) Simple to calculate
Cons: a) Does not cover actual cost b) All
customers carry the same burden c) Does not compensate
for changing DOT index
3) Percentage of invoice indexed to DOT fuel index
Pros: a) Simple to calculate b) Compensates for
changes in DOT index
Cons: a) Does not cover actual cost b) All customers
carry the same burden
4) Contracted index with each customer, negotiated
as part of pricing agreement
Pros: a) Customized to each customer
Cons: a) Must be negotiated with each customer b)
Must be maintained in systems
5) Fuel included in cost and not broken out as
separate line-item
Pros: a) Simple to execute
Cons: a) Does not cover actual cost b) All
customers carry the same burden c) Does not compensate
for changing DOT index
Summary
Operations Associates has been addressing these issues
for several clients recently. While fuel costs will
never be eliminated, we have been successful in driving
process changes that allow our clients to smooth fuel
fluctuation’s impact and build budgets that address
market realities while ensuring “no surprises”.
Advanced Project
Management Seminar
Contact Mike Rigg for information and
pricing on seminars for your office.
Mike Rigg, Principal
MikeRigg@oallp.com
800-860-4902
Mike will also be instructing
this upcoming class:
Advanced Project Management for Engineers
May 26, 2006 8:30 a.m. - 4:30 p.m.
Location: UNC Charlotte Uptown
Fee: $235
704.687.8900
CEregistration@email.uncc.edu |
PRO-FIT-SHARE® Plans
By: Bob Hassold
HUMANEERING® International, Inc. is an
OA alliance partner
HUMANEERING® International, Inc. is a professional
services firm with a 22–year history of helping
companies improve their “bottom line” by realizing the
full contribution potential of their Human Assets.
Our innovative and proprietary PRO-FIT-SHARE® concept
creates a working environment where employees come to
work with an “ownership” mindset, as a result of having
a “stake” in the incremental financial improvement
realized by their performance improvement contribution,
individually and collectively.
Contrary to the often “ the sky is falling down”
negatives associated with incentive plans, properly
structured incentive plans DO WORK! HUMANEERING®’s
PRO-FIT-SHARE® concept has consistently provided
performance improvement to our clients – as much as 40%.
Our 22-year success is based upon designing
PRO-FIT-SHARE® plans embodying the following MUSTS:
• Must be FAIR to the
Company… then FAIR to Plan participants.
• Plan must be easily understood.
• Performance attributes measured are those over
which employees have a direct impact.
- Use 80/20 Rule in selecting performance
attributes.
- Establish a “line of sight” performance
improvement focus.
- Create a sense of work process “ownership.”
• Plan needs to reward success of the whole, not
individuals or Departments – this creates a working
environment that encourages:
- Teamwork
- Sustained focus
- Peer Pressure for performance improvement
• Performance improvement never compromises quality,
rework, safety, and the like.
• Timely pay-out of savings made to continually drive
the improvement process:
- Withhold an appropriate portion of pay-out for
on-going risk
- Distribute all “risk hold-back” funds at
year-end.
• Calculated savings to “order of magnitude”
accuracy, not micro.
• Bonus payouts to participants are proportionately
adjusted based upon an individual’s contribution to the
Plan’s success.
• Performance bonus earned paid by separate check.
- Direct relationship to performance improvement
contribution
• Designate “Plan Champion.” - Management must “Walk
the Talk.”
• Communicate, Communicate, Celebrate, Celebrate …
successes!
For more information
contact:
Mike Rigg, President
MikeRigg@oallp.com
Christi Suchyna, Director of Sales &
Marketing
ChristiSuchyna@oallp.com
800-860-4902
FREE Offers!
Call us for our free "Best Practices"
booklets:
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Avoid In
Distribution Center Planning
Ten Steps to Avoid
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