Fuel Recovery is the only shipment-specific, market-based fuel reimbursement program in the industry. Using daily fueling station data from across North America, Breakthrough brings accuracy and transparency to an otherwise distorted practice that puts unnecessary costs into shippers’ supply chains.
Current fuel surcharge practices are antiquated, dating back to the early 1980s. The DOE index was never intended for use in commercial trucking agreements yet shippers rely on it to control almost 30 percent of their total transportation shipping costs.
Interested in learning more about the history of the DOE diesel Fuel Price Index? Read about it on our blog.
National Fuel Surcharge Distortion Exists Today
Fuel surcharge rates that use an index are an inherently incorrect way to calculate your fuel consumption.
The DOE fuel index publishes an average weekly price used as a catalyst to drive the rate-per-mile reimbursement costs. This produces a single price for diesel across all geographies in the U.S. While it is common knowledge that average calculations lack the visibility needed to tell the full picture of the data, this point is exacerbated by a limited sample set utilizing less than 10 percent of fueling stations across the country.
The result? The cost differential between a traditional fuel surcharge program and the market-based cost calculation can be as much as 40 cents per gallon – and in 2018 hit a high of 77 cents to close the year. This price per gallon “spread” adds up as it accrues over millions of miles and thousands of shipments. This magnifies the inaccuracies associated with traditional fuel surcharge methodologies and can cost shippers millions annually in freight spend.
Take Control of Your Trucking Fuel Surcharge Rates
Managing your fuel spend is one of the most impactful strategies shippers can take to reduce costs. Return on investment starts on the first shipment on your first day on the program, and savings continue in perpetuity with the ebbs and flows of the market.
Adopting Fuel Recovery accomplishes all of this by eliminating key distortions in your current DOE index fuel surcharge.
Eliminating 4 Key Distortions from Fuel Reimbursement Calculations
National fuel surcharge distortion originates in four key areas:
- Price Distortion: The national retail diesel price average does not represent how well managed carriers procure fuel.
- Tax Distortion: One national average is unable to account for taxes by state, which vary by as much as 65 cents per gallon across the US.
- Time Distortion: Fuel prices fluctuate daily, and one average weekly price does not account for fuel volatility driven by key market events.
- Geographic Distortion: Fuel prices vary across the US, meaning some lanes are being over-reimbursed, while others may be under-reimbursed.
Breakthrough Fuel Recovery calculations are based on the price, tax, time, and geography specific to each of your freight movements. Fuel Recovery pinpoints where and when your freight travels and uses parameters specific to your network to calculate the cost of diesel specific to that individual movement. We tap into thousands of fueling locations across the United States and look at the costs your carriers encounter along each route.
Using Wholesale Diesel Fuel Costs
The DOE Index is reflective of retail fuel costs; however, most well-managed carriers procure fuel at a discount, often near the wholesale diesel fuel level. Diesel enables the service that carriers provide, so it should, therefore, be a pass-through expense. Shippers should reimburse their carriers at the same price point their carriers incur on a shipment.
Prices Fluctuate Daily
From global geopolitical uncertainty to traumatic weather events, and everything in between, prices can shift at a moment’s notice. These variables drive market fluctuations in the price of fuel seven days per week, 365 days a year. Using a weekly update overlooks this volatility resulting in fuel price risk for both shippers and carriers.
If prices dip following a significant event, shippers’ costs should follow. Conversely, when prices spike following a hurricane or crude oil production decision from OPEC, their strategy should fairly reimburse their carriers for those elevated costs.
Accounting For State Taxes
Carriers pay fuel taxes according to where fuel is consumed, and taxes can account for anywhere between 5 and 30 percent of the price of a gallon of diesel. States like California and Pennsylvania have significantly higher state taxes than states like Oklahoma and Missouri—a difference of as much as 65 cents per gallon. Paying a national average fuel price means you are disregarding the specific tax structures that affect your network.
Geographic Variability in Prices
Fuel prices fluctuate from station to station, and so should your reimbursements. A gallon of diesel in Los Angeles, CA is priced differently than a gallon purchased in Houston, TX, or in Fargo, ND. To accurately account for geographic variance, Breakthrough Fuel Recovery uses shipment origin and destination data to ensure fuel reimbursements are only calculated from fueling station data along your individual shipment’s route.
If you are shipping freight through Oklahoma, why include New York or Florida pricing in your reimbursement calculation?
Its Time to Ditch the DOE and Use Market-Based Fuel Prices for Reimbursements
Industry best practices are shifting, and shippers from every industry vertical, and of every size are taking control of their transportation fuel spend.
Download your guide to Ditching the DOE and take the first step in managing your transportation fuel surcharge with Breakthrough’s data-driven solutions!