Fuel

4 mins

How Is Breakthrough Fuel Recovery Calculated?

Matt Balzola

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Matt Balzola
August 25, 2021

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Breakthrough is committed to removing distortion, achieving transparency, and establishing fairness across shippers’ transportation strategies. Transportation fuel management is a key component of the strategy, as diesel fuel can comprise up to 30% of a shipper’s transportation spend. To calculate an accurate fuel reimbursement between shippers and carriers, time, price, tax, and geography must be accounted for by lane.

Fuel Recovery is the only real-time, lane-level program to determine fair and accurate transportation fuel reimbursements. Using daily fueling station data from across North America, Breakthrough brings accuracy and transparency to a historically distorted line item in shippers’ budgets. The transition to a Fuel Recovery program removes excess costs which helps establish a baseline to inform ongoing strategic improvements to both fuel and freight strategies.

It is common for diesel fuel reimbursements to be calculated as a surcharge based on the Department of Energy’s retail diesel price index (DOE Index). And although a reimbursement mechanism is necessary for the shipper and carrier relationship, the calculation shippers use hasn’t been updated since it was established in the early 1980s. Commercial trucking fuel calculations have become more complex since this time, and Fuel Recovery accommodates these intricacies.

Interested in learning more about the history of the DOE diesel fuel price index and its applications in commercial transportation? Read about it on our blog.

Why Are Fuel Surcharges Distorted?

Fuel surcharge rates that use the DOE Index do not account for a shipper’s unique transportation network. The time, price, tax, and geography associated with each shipment can greatly influence the fuel reimbursement calculation, and a DOE index-based program fails to recognize these important factors.

The DOE diesel fuel index price is calculated weekly based on a sample set of less than ten percent of diesel fueling stations across the United States This single price point provided via the index is then used as an input for reimbursements that result in a surcharge. This calculation disregards dynamically changing wholesale diesel prices.

The result? The cost differential between a traditional index-based fuel surcharge and the market price for diesel fuel on a shipment can sit around 42.9 cents per gallon – and in 2021 hit a high of over 78.4 cents per gallon. This price per gallon “spread” adds up as it accrues over millions of miles and thousands of shipments.

How to Take Control of Your Trucking Fuel Surcharge Rates:

Managing your fuel spend is one of the first impactful strategies shippers can take to reduce costs. 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 movements. 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.

Return on investment starts on the first shipment on your first day on the program, and savings continue in parallel with the ebbs and flows of the market. In 2021, an average 10-million-gallon shipper on Fuel Recovery reduced their truckload fuel spend by 20 percent and their intermodal fuel spend by 58 percent. This is credited to accounting for four factors necessary for an accurate fuel reimbursement calculation: the price, tax, time, and geography of every individual freight movement.

  • Time: Wholesale diesel prices can fluctuate abruptly. Breakthrough Fuel Recovery clients capture daily fuel price changes, ensuring they always pay the right price from the day of their shipment.

  • Price: Well-managed carriers procure fuel at wholesale prices, but the DOE provides a retail index for diesel fuel. Fuel Recovery calculates reimbursements according to the price your carriers incur at the pump.

  • Tax: Over-the-road fuel taxes vary dramatically by state and make up a large portion of total diesel costs. Fuel Recovery accounts for taxes by state, the way carriers pay fuel taxes.

  • Geography: Diesel commodity costs vary substantially from one market to the next, creating regional variance. Fuel Recovery accounts for the differences in regional pricing by calculating fuel prices specific to each lane your goods travel on.

It's Time to Ditch the DOE and Use Market-Based Fuel Prices for Reimbursements

Industry best practices are shifting, and shippers from every industry vertical of every size are taking control of their transportation fuel spend.

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