Preparing for Pandemic? Take Fuel Off Your Plate

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In response to fluctuations in the market, some shippers were more prepared than others to account for significant shifts in fuel prices. Of those shippers, they collectively saved over $10M in the last five days alone. That breaks down to an average savings of over $50 per shipment.

How did they do this when many aspects of their strategy were adding incremental costs to their bottom line? By adopting and trusting a data-driven, market-based approach to one of the most volatile line items in their budget. That line item is fuel.

How Uncertainty Affects Shippers’ Operational Strategies

Right now, uncertainty in the market is unprecedented as it relates to the rapidly evolving COVID-19 pandemic in concert with the global crude oil price war between Saudi Arabia and Russia.

For a deeper analysis of how these two events are specifically influencing fuel prices in geographies across the globe, read here.

Consumers are preparing for the threat of COVID-19’s spread and potential quarantine in response to the media’s reporting of the virus. As a result, goods are flying off the shelves, international flights are being halted, and economic activity is extremely volatile.

As this uncertainty endures, the transportation and supply chain industries are left with a host of questions yet to be answered, and more importantly, strategies and plans left in disarray. In an industry where many shippers have manufacturing cycles several months long and still rely on annual RFP cadences to contract freight to move their goods, many organizations are not built to adapt to rapid fluctuations in the market.

Even the most forward-thinking, strategic players will struggle to adjust to this level of uncertainty.

Many links in the supply chain depend on one another, so disruptions in one area can have cascading effects throughout your processes. This can create a headache when trying to mitigate the effects instigated by this level of market disruption. With that in mind, shippers will most adeptly navigate the challenges of the current marketplace when they minimize the variables that need to be addressed.

Eliminate Variables to Support Agile Crisis Management

Your first instinct is likely to monitor demand for your products and ensure there is capacity to get them to retailers and into the hands of your consumers. This is where most of your time should focus.

But as you mobilize your team to respond to market changes, it is easy to overlook how these changes influence key elements of your transportation strategy. While you were meeting capacity needs, the cost of fuel reimbursements is a commonly overlooked component of your spend.

Over the last few weeks, diesel fuel prices plummeted. Did the price you paid your carriers fluctuate accordingly?

How Much Are Shippers Overpaying for Fuel Reimbursements?

Diesel fuel reimbursements can account for up to 30 percent of your overall transportation spend. Shippers who use a fuel surcharge schedule that utilizes data from the Department of Energy’s (DOE) Diesel Fuel Price Index are calculating a significant cost that doesn’t fully represent these dynamic price changes, and therefore are likely overpaying carriers.

Read a history of diesel fuel surcharges, why they are based on the DOE fuel price index, and why they shouldn’t be forty years later in 2020, here.

Because of the time-lag in the DOE index’s update, any volatility in the released price that happens between the Monday evening release and that same time the next week is lost in reimbursement calculations.

*Numbers represent the cents/gallon difference between the DOE’s national average diesel fuel price and national average wholesale prices. Actual overpayment varies on a shipment by shipment basis.

 

On the same day of this publication’s release, Friday, March 13th, shippers using the DOE index will overpay carriers by over 89 cents per gallon on average.

The only way to eliminate the distortion and inaccuracies of this common reimbursement mechanism is to use a market-based approach like Fuel Recovery—the industry’s only fuel management program that uses data that is updated daily, geography dependent, and measured at the wholesale level.

Since Monday, when the DOE diesel fuel price was updated, Breakthrough clients using Fuel Recovery collectively avoided $10M in overspend.

Read how Breakthrough Fuel Recovery calculates our shippers’ fuel reimbursements with a market-based approach, here.

When you effectively remove fuel from your list of things to monitor in times of crisis, your team can reallocate their time toward more pressing challenges, and all partners can rest assured that they will be made whole on fuel, no matter what happens in the market.