Issue Date: July 2009 e-news, Posted On: 7/27/2009
Fuel Surcharges: A Midyear Look with Tips on Calculating Future Changes
By Doug Kahl
EDITOR'S NOTE: Doug Kahl has prepared the following to help you understand the current state of fuel surcharges and how to calculate them in advance of the carriers releasing the information to you.
Keeping track of the fuel surcharge (FSC) is very important since it is typically the single most expensive and certainly the most volatile of the various accessorial charges. NOTE: There is a two-month lag between the US Department of Energy's (DOE) posting of fuel costs to the carriers' application of the index number to apply their surcharge. For example, here in July, the 2.75% Ground and 2.5% Air FSC is based off the May DOE's On-Highway index of 222.7 and Jet Fuel index of 148.8.
Knowing the DOE's June indexes were 252.9 and 180.47 for On-Highway Diesel and Jet Fuel respectively, using the carriers' FSC tables, we can project August FSC of 3.50% for Ground and 6.50% for Air ,even though the FSC has not yet been published.
Exhibit 1 below reports the Ground and Air FSC month-by-month for 2008 and year-to-date 2009. Exhibit 2 below reports the actual cost drivers, the DOE's On-Highway and Jet Fuel indexes. Although the numbers are nowhere near the record costs of last summer, they do show a trend that you should keep a close eye on.
Exhibit 1:Fuel surcharges by month
2008
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Ground
6.25%
6.25%
6.00%
6.25%
7.75%
8.50%
9.50%
10.25%
10.50%
9.25%
8.25%
6.75%
Air
19.50%
18.50%
18.50%
20.00%
25.00%
28.00%
32.50%
34.50%
34.50%
27.00%
28.50%
15.00%
2009
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Ground
4.75%
3.25%
2.75%
2.50%
2.25%
2.75%
2.75%
3.50%
Air
7.50%
1.00%
2.50%
0.00%
0.00%
1.00%
2.50%
6.50%
Exhibit 2: The Cost Drivers, On Highway Diesel Fuel & Gulf Coast Jet Fuel Indexes
2008
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Diesel
330.8
337.7
388.1
408.4
442.5
467.7
470.3
430.2
402.4
357.6
287.6
244.9
Jet Fuel
260.47
272.82
312.45
336.46
373.76
387.82
388.63
327.06
339.33
231.47
187.96
137.51
2009
Jan
Feb
Mar
Apr
May
Jun
Diesel
229.2
219.5
209.2
222.0
222.7
252.9
Jet Fuel
146.92
125.94
126.76
136.93
148.8
180.47
The increases in both diesel and jet fuel will push next month's FSC to the second highest point of 2009.
A source for near-term energy cost projections is the Short-term Energy Outlook, published monthly by the Energy Information Administration. Exhibit 3 below shows January's projections and July's year-to-date actual with third- and fourth-quarter projections. Applying the outlook's numbers to the carriers' FSC tables, we can project 3.75% Ground with 7.50% Air FSC through Q3 and 4.25% Ground with 8.50% Air FSC in Q4.
Exhibit 3: 2009 Monthly Energy Information Administration (EIA), Short-term Energy Outlook
Jan 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Diesel
228
229
225
224
Jet Fuel
153
159
155
155
July 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Diesel
220
232
261
271
Jet Fuel
137
162
187
197
projected
actual
Projected Fuel Surcharges based on EIA Outlook
Third Quarter
Fourth Quarter
Ground
3.75%
4.25%
Air
7.50%
8.50%
The mid-year numbers have taken a jump up from the projections at the beginning of the year. For those of you with heavy shipment trends during the holiday or year-end, keep a close eye on the DOE's fuel indexes in September and October as those indexes will drive the November and December FSC's and adjust your peak season budgets accordingly.
Doug Kahl is Vice President, Strategic Initiatives for TranzAct Technologies, a logistics management solutions company that helps shippers reduce their transportation spend while providing the tools necessary to remain in control and make better business decisions on an ongoing basis. [KahlDouglas@tranzact.com]
