The transportation RFP practice remains a key cost and service optimization tool for shippers. Reducing freight lane expenses, acquiring more robust services, and reevaluating the carrier and mode mix periodically is advantageous for shippers. One often overlooked line item that shippers should look more closely at in their next round of RFPs is transportation fuel charges.
Once seen as an unavoidable “cost of doing business,” advancements in technology continue to create opportunities for shippers and carriers to manage fuel surcharges based actual market costs – not outdated national and regional averages. The inability to manage costs in energy is a detriment to a shipper’s supply chain. As the Harvard Business Review described it:
“Large companies spend millions, or billions, of dollars directly on energy each year—and millions more indirectly, on supply chain, outsourcing, and logistics costs. Yet outside the most energy-intensive industries, the majority of firms approach energy as merely a cost to be managed. This is a strategic mistake that overlooks enormous opportunities to reduce risk, improve resilience, and create new value.”
Getting Away from Gambling on Fuel Prices
Shippers currently utilizing the DOE Price Index are not reimbursing their carriers accurately. The DOE Index – created decades ago – was not originally intended to be a model used for carrier fuel surcharge calculation. Prices are only updated weekly and are based on a national retail average, instead of wholesale pricing where most well managed carriers purchase fuel. On top of that, the DOE Index offers little agility to deal with regional variations or external influencers such as weather impacts and refinery production changes.
For a closer look at how Breakthrough®Fuel services compare to the “old way” of doing business, view our “Actuals vs. Averages” infographic.
When carriers have to guess on future fuel costs in an RFP using the traditional system, sometimes they win and sometimes they lose.
It’s time to get away from this system of gambling on the price of fuel as a way to preserve carrier margins, and move to a model where the prices paid for fuel represent the actual costs of moving goods to market on a particular lane. That’s where Breakthrough®Fuel comes in.
Without having to guess what will happen to fuel prices over the contract duration, carriers are able to provide more accurate freight lane bids. The end result is more dependable revenue and the knowledge that they will be reimbursed accurately no matter what happens to the price of diesel.
Fuel Certainty Leads to More Accurate Carrier Proposals
This freedom from risk also creates more certainty for shippers, who know that the proposals they receive will focus on network capability and the ability to meet service requirements, not fuel price estimations. Carriers can then be chosen based on their ability to meet performance metrics at a reasonable cost. In established relationships, carriers and shippers will be free to focus on continuous improvement across the network, such as converting long length of haul routes to intermodal.
Our Fuel Recovery program empowers shippers and carriers alike by removing the effects of geography, time, and tax variations that distort costs. For example, our services account for new costs incurred by carriers such as recent fuel tax changes in California, or the impact of hurricanes Harvey and Irma. This focus on a more nuanced fuel market ensures that carriers and shippers can treat fuel reimbursements as a pass-through expense, focusing instead on service expectations.
A Smooth RFP Process for Carriers and Shippers
Breakthrough®Fuel, manages the process of carrier education and training, while the rest of the RFP process and carrier onboarding remain similar as current processes for both shipper and carrier. More importantly, Fuel Recovery and the mission to create transparency in fuel costs continues to become accepted as an industry best practice. Most shippers will see that their unique carrier base is already familiar with the process and executes the Fuel Recovery pricing model with other shippers in their network.
The average Breakthrough®Fuel client will see fuel costs reduced by 25% in their first full year on the program, with some achieving as much as 34% in their first year. Additional outputs from a market-based approach include converting lanes to intermodal at a rate double the industry average, and taking advantage of carrier technology to increase fuel efficiency up to 70 percent.