.........I dispatch for a large non-union carrier of about 3800 OTR tractors. Freight rates are simply based on miles from dock to dock. It used to cost 96 cents a mile to break even. This was lights, fuel, maint, paying my wage, permits, registrations, etc, etc, etc.
Rates are not fixed by any means and undercutting by salesmen is rampant in the industry. Things can get so tight in some lanes that a blown $275 trailer tire will make a 2200 mile run a loss on paper. Naturally the shipper/manufacturer wants the least expensive carriage and at the same time demands a level of service.
Fuel is an expense that fluctuates greatly even in calm oil climates in various locations. The industry 'pegs' an average fuel price that a regional carrier may or may not be influenced by, but a 48 state carrier does use as a guideline.
Due to it's taxes, fuel in California is expensive, and for my company fully 30% of our total company wide tonnage comes out of and into this state. Even if you can avoid buying fuel in California or any other expensive state, you still have to pay road use taxes whether you buy fuel or not.
The logistics of going to each and every one of your customers with a brand new rate increase proposal every time fuel goes up or down just isn't feasible. Instead the customer has an amendment made to their existing contract that reflects a percentage increase-decrease in their contract based on the pegged national average fuel price.
This information is not top secret and the customer can surely watch it. UPS operates the largest private fleet of fuel burning equipment in the country. Fuel expense would naturally be a major concern.
Our current fleet usage stated as average MPG is a bit less then 6.25. When diesel goes up 50 cents a gallon on average, your 'per mile' expenses just went up about 7.5 cents per mile. Your rates to a customer can only be represented (usually) as an average of your companies increased expenses.
We haul lots of freight where the profit margin is only cents per mile. Without a fuel surcharge every load hauled would represent a net loss. The only people who can do that own the printing presses.
Since the fuel surcharge is an average, there are a few customers that will pay some fractions of a cent per mile more then if each load they shipped was broken down by fuel costs PER STATE on the route. Other customers can benefit in a similar fashion, yet both are shouldering an increase.
The trucking company is not making any more money. In fact, to try and remain competitive they may still LOOSE money that the surcharge is trying to maintain. Customers start looking when things like this happen, and good service relations go out the window with sudden price increases.
As a consequence most everything we buy has it's price increase. You've heard the term, "If you bought it, a truck brought it". It's basicly true. However this causes a cumulative increase that may get out of proportion.
A company pays for raw materials X, Y, and Z to be delivered. Each carrier is now charging an individual fuel surcharge. The company has to increase it's manufactured item's cost. This same company may also use a petroleum product as in some plastics. Their raw material price just went up and the city has raised their rates to cover increased costs in operating their trash trucks and waterpumping expenses.
The carrier delivering the finished product to a warehouse charges a fuel surcharge. The retailer may operate their own delivery trucks, but their fuel expenses have also gone up. All these compounded expenses are passed right along to the final user. Us.
I'm thankfull for a couple things. I get paid a decent wage and work in a nice environment. I also got a 2.5% pay increase this year. However my 2.5% pay increase about covers my increased fuel expense to and from work. My wife got no raise so we went backwards as far as income goes.
The other thing I'm thankfull for is that I wasn't hit for a 2.5% DECREASE in my pay.
Best,
Rick