Everything transport providers need to know about fuel surcharges
Transport and logistics providers have seen enormous volatility in the fuel market. So much so that protecting customers from the extreme fluctuations of diesel prices has become extremely challenging. Businesses in this sector, understandably, want to protect their margins but they also want to provide assurances of stability for their clients. After all, the transport and logistics sector services companies of all shapes and sizes that are also grappling with fluctuating overhead costs.
Erratic fuel pricing is an unfortunate reality of today’s transportation and logistics sectors. But that doesn’t mean that it is beyond a measure of control. With careful planning, supported by the right software, transport providers can mitigate the effects of surcharges on their cash flow. This empowers them to remain competitive in their pricing and deliver value to the customer while also ensuring that their margins are not eroded by fuel spending.
🚛 What is a fuel surcharge?
A fuel surcharge is a flat cost that allows transport and logistics to incorporate the cost of fuel into their rates. This may vary from one contract to the next, but it is there to protect both businesses and their clients from fluctuations in fuel costs ensuring that pricing is consistent and transparent.
Are fuel surcharges necessary?
Unfortunately, yes. It’s entirely understandable that transport providers may want to absorb all fuel costs to protect their customers and retain their value proposition. However, absorbing rising fuel costs yourself could be hugely detrimental to your business.
Absorbing fuel costs puts more pressure on your cash flow and margins. This leaves you with less to spend on essentials like new vehicles, maintenance, employee training and development, and your IT infrastructure. This can open your business up to more risk and potentially damage your brand.
Fuel costs are taking up an increasingly large part of the transportation sector’s operational spending. As Rod McKenzie, from the Road Haulage Association (RHA told BBC News: "Fuel represents over a third of a truck’s operating costs yet profit margins are between 1% and 2%”.
Qargo enables businesses to keep prices competitive by reducing overheads and insulating their bottom line against the effects of fuel surcharges.
🚛 How are fuel surcharges calculated?
Fuel surcharges are essential in protecting both transportation companies and their clients from fuel market volatility. Nonetheless, there’s a careful balancing act that needs to be borne in mind when calculating them. Surcharges need to be generous enough to cover not just the current price of fuel but future fuel prices, too. That said, they also need to ensure that prices are reasonable enough to ensure that providers are not undercut on price by their competitors.
Fuel surcharges need to be tethered to existing data in order to ensure that they are competitive while also conducive to healthy cash flow and reasonable margins. This is most commonly accomplished by referring to the weekly road fuel price index. Alternatively, fuel surcharges can be calculated based on fuel base rates.
Qargo enables logistics providers to configure tables according to their preference to provide the data they need for accurate fuel surcharges.
The fuel price index
The road fuel price index is tracked by the government on a weekly basis to enable companies to track the retail price of fuel. It is linked to the RPI for petrol and oil which is tracked by the Office of National Statistics. Based on this, users can define a minimum and maximum fuel price range based on historic data and configure matching surcharge percentage as an absolute value.
Users will be able to calculate fuel surcharges expressed either as a percentage of the transport price, a percentage of the total transaction price, or a flat fee.
Base price demand
The base price for fuel is the rate at which it is determined that a fuel surcharge will be activated. Users can use the fuel price on a given date to set the base price or enter a figure manually gleaned from historic data gathered elsewhere.
With the right tools, transportation providers can visualise their fuel costs, and how they impact margins, helping them to inform fuel surcharges and maintain cost-efficient operations.
🚛 How Qargo can help
Unfortunately, Qargo cannot change the volatile nature of the fuel market. What we can do, however, is provide you with the tools you need to accurately calculate a fair fuel surcharge that allows you to recover your costs while also keeping your prices competitive. With Qargo, you can actively gauge fuel surcharges based on either fuel price indexing or base price demand.
Qargo also facilitates more efficient planning, more effective resource management and faster payments. All of which can help to aid cash flow and enhance profitability. This will further empower businesses by ensuring that there are fewer costs to absorb, meaning that they have a greater margin when it comes to fuel surcharges. Qargo enables businesses to keep prices competitive by reducing overheads and insulating their bottom line against the effects of fuel surcharges.
Want to see what else it can do for your operations? Why not book a demo today?