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, including department of energy fuel surcharge calculations, are antiquated, dating back to the early 1980s. The Department of Energy (DOE) index was never intended for use in commercial trucking agreements,4 yet shippers rely on it to control almost 30 percent of their total transportation shipping costs.
Interested in learning more about the DOE diesel Fuel Price Index and its use in fuel surcharge history? Read about it on our blog.
National Fuel Surcharge Distortion Exists Today
Fuel surcharge rates that use a diesel index are an inherently incorrect way to calculate your fuel consumption.
The DOE diesel fuel index price is based on a sample set of less than 10 percent of fueling stations across the country, published weekly. This single price point is used as an input for rate-per-mile reimbursement costs.
The result? The cost differential between a traditional fuel surcharge index program and the market-based cost calculation can sit around 40 cents per gallon – and in 2020 hit a high of over $1.14 cents per gallon. This price per gallon “spread” adds up as it accrues over millions of miles and thousands of shipments.
Take Control of Your Trucking Fuel Surcharge Rates
Managing your fuel spend is one of the most immediately 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 index-based 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 of every individual freight movement. Fuel Recovery pinpoints where and when your freight travels and uses parameters specific to your network, like fuel efficiency, to calculate the cost of diesel on individual movement. We tap into a more complete dataset, including 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 based on the same price information their carriers experience 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, like the coronavirus pandemic or the crude oil price crash in 2020, shippers’ cost of diesel fuel 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 diesel 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
Your fuel reimbursements should follow varying diesel fuel prices by state and from station to station. A gallon of highway 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 truck stop 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!