This week the Department of Energy posted an average diesel fuel price of $3.285 that indicated a 0.003 cent decrease from last week’s reported price.
Just like every other Monday, both shippers and carriers tuned in to see the DOE index price, set once and left for the rest of that week. For some, this price is used to calculate fuel reimbursement to carriers for moving a shipper’s goods to market across the country. (An index that was never originally intended for this use—read more about it’s history here.)
Decreasing fuel prices week over week may sound like positive news, even if that decrease is minute, as seen the past week. However, the price reported by the DOE’s index was not representative of the market. The national average market price of diesel fuel dropped just over 5 cents over the same period. This distortion, coupled with the fact that most well-managed carriers procure fuel at wholesale prices, means shippers using the DOE index to calculate their fuel reimbursements overpaid for diesel fuel—because it didn’t reflect the true market price.
A few cents in the scheme of major transportation budgets may seem minor, but that’s just an average across the country. At Breakthrough®, we calculate accurate prices every day, specific to real lanes being traveled. We call the difference between the DOE index’s reported price and the actual wholesale price of fuel in a specific location “the spread.” Across all 50 states, the spread averaged 41.87 cents.
When you take this distortion further and drill down into specific regions, and even exact routes being traveled, it is evident that the DOE Index’s posted price doesn’t reflect the true cost of fuel in almost every area of the country. In Oklahoma, the spread was over 64 cents. Shippers in Wisconsin overpaid by as much as 41 cents per gallon. On this day, Louisiana hit spreads topping 60 cents. These discrepancies are far more intuitive than a national average, and result in enough savings to make insightful transportation professionals take notice.
Over millions of gallons, every cent adds up. When fuel makes 20-30 percent of total transportation spend, shippers and their carriers cannot afford to ignore small inaccuracies. Shippers severely overpay for the fuel that moves their goods to market because the common surcharge system fails to encapsulate nuanced changes in the market based on tax, time, and geography.
At Breakthrough®, we believe in fairness and accuracy. Calculating diesel fuel reimbursements based on daily, lane-level data ensures that variability in the market is always reflected in shipper-carrier relationships.
For more information about how to bring transparency to the cost of fuel moving your goods to market, contact us!