Fuel Surcharge Performance Report

P r e s e n t e d b y :

S e t h L a n g D a n T u r n e r

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Mountain Equipment Co-op – Directed Studies 2011

ACKNOWLEDGEMENTS

The following individual’s contributed in making this project possible.

This project could not have been successfully completed without a steady flow of support, guidance and leadership that was provided to us throughout our Directed Studies experience.

A very special thank you goes to the following:

Mountain Equipment Co-op

Debbie Sung Mike Au Paul Robles

Logistics Analyst Manager Supply Chain

Services Logistics Analyst

British Columbia Institute of Technology

Gordon Kennedy Instructor

and Project Advisor

And all others who offered advice and assistance in contribution to the

Mountain Equipment Co-op Directed Studies 2011.

THANK YOU!!!

And a special thank you goes to our families for your patience and understanding with late nights, early mornings, and high stress moments!!

“In helping others, we shall help ourselves, for whatever good we give out completes the circle and comes back to us”

Flora Edwards

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EXECUTIVE SUMMARY

The purpose of this report is to provide the Mountain Equipment CO-OP (MEC) with information, understanding, and methodology that MEC can use to manage fuel surcharge rates. This report will look at how the fuel surcharge rates that MEC has paid select carriers, from 2008 through 2010, compare to industry rates for this period. This report will allow MEC to reach a clear understanding of where they stand relative to industry norms, as well as provide the reader with a full understanding of the components and methodology carriers use to calculate their fuel surcharges. The purpose is also to provide an understanding of how fuel surcharges may be reduced, or gains may be made through negotiation with carriers. This report was prepared at the request of Mr. Mike Au, Manager of Supply Chain Services at Mountain Equipment CO-OP. It can be separated into four separate sections.

Understanding Fuel Surcharges: This section is purely informative. It includes fuel surcharge history, application techniques, components, rate methodology, and industry practices.

Fuel surcharge analysis: The section of the report looked at a total of 1017 invoices from seven of MEC’s major ground carriers used to transport merchandise through their supply chain in North America. This information was used to compare MEC’s carriers to each other, and to a select group of 8 companies that are comparable to MEC’s carriers. The carriers were categorized into cross border and domestic hauls. Their fuel surcharge rate types were also separated by less than truckload (LTL) and truckload (TL) rates. Next, a benchmark was established using the Freight Carriers Association of Canada’s (FCA) fuel surcharge formula, and a trend analysis was conducted. The findings key findings of the analysis are:

MEC had an overall weighted fuel surcharge score of .99 times the combined LTL/TL FCA benchmark for the period between January 2008 and December 2010.

o Weighted LTL = 1.25 times the FCA benchmark o Weighted TL =.73 times FCA the benchmark

Using the r-squared statistical formula, MEC is able to rate carriers based on the strength of the relationship between movements in fuel prices and movements of their corresponding fuel surcharges. This information can be used to avoid or take advantage of fuel surcharge adjustment lag time in the short run.

Negotiating fuel surcharges: This section is also information based and provides guidance when negotiating fuel surcharge rates. Included is the case for and against fuel surcharges, MEC’s bargaining position, areas for improvement, evaluating gains, and a case of changing culture.

Recommendations: This report recommends that MEC:

Implement a fuel surcharge information management system

Employ the “Fuel Surcharge Assessment Tool” that is attached to this report

Develop bargaining position assessment methodology

Enforce a policy were new carriers must be “SmartWay Transport Partners”, and provide an annual sustainability report.

Value improvements made in fuel efficiency by carriers as reductions to fuel surcharge rates

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TABLE OF CONTENTS

Executive Summary ................................................................................................................................................................ 2

Table of Figures ........................................................................................................................................................................ 4

Part 2: Fuel Surcharge Analysis ......................................................................................................................................... 4

Introduction ............................................................................................................................................................................... 5

Purpose and Objective ...................................................................................................................................................... 5

History of Fuel Surcharges .............................................................................................................................................. 5

Establishing Rates ................................................................................................................................................................... 6

Fuel Surcharges by Country ...................................................................................................................................... 6

Formula Method ............................................................................................................................................................. 7

Industry Standards ............................................................................................................................................................ 9

Industry Fuel Surcharge Analysis ..................................................................................................................................... 9

Data Used ............................................................................................................................................................................... 9

The FCA Benchmark ........................................................................................................................................................ 10

Analytical Methodology ................................................................................................................................................. 10

Introduction to Analysis ..................................................................................................................................................... 11

Cross-Border Analysis ......................................................................................................................................................... 12

YRC Reimer.......................................................................................................................................................................... 12

Hercules ................................................................................................................................................................................ 13

Industry Cross-Border Carriers .................................................................................................................................. 14

Domestic Analysis ............................................................................................................................................................ 16

Internal Analysis .................................................................................................................................................................... 25

Relationship and Predictability of MEC’s Carriers .............................................................................................. 25

Weighted Findings ........................................................................................................................................................... 26

Negotiating Fuel Surcharges ............................................................................................................................................. 27

Justification ......................................................................................................................................................................... 27

MEC’s Bargaining Position ............................................................................................................................................ 27

Disclosure ............................................................................................................................................................................ 27

Improving Efficiency ....................................................................................................................................................... 28

Updating the Base Rate .................................................................................................................................................. 29

Changing Culture .............................................................................................................................................................. 29

Summary ................................................................................................................................................................................... 29

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Recommendations................................................................................................................................................................. 30

Bibliography ............................................................................................................................................................................ 31

Appendences ........................................................................................................................................................................... 32

Appendix (1) Freight expenses 2008 to 2010 ...................................................................................................... 32

Appendix (2) Weighted Averages .............................................................................................................................. 33

Appendix (3) Key interviews ....................................................................................................................................... 33

Appendix (4) SmartWay Transport Partnership: Innovative Carrier Strategies ................................... 34

Additional Resources Found On Accompanying CD. .............................................................................................. 36

TABLE OF FIGURES

Figure 1A Fuel price history ................................................................................................................................................ 5 Figure 2A: YRC Reimer’s rate history with MEC vs. FCA benchmark (2008 through 2010) .................. 12 Figure 3A: Hercules rate history with MEC Vs. FCA benchmark (2008 through 2010) ........................... 13 Figure 4A: MEC’s Carriers vs. Industry fuel surcharge rates ............................................................................... 15 Figure 5A: Day and Ross LTL rate history with MEC vs. FCA benchmark (2008 through 2010) ......... 16 Figure 6A: Day and Ross TL rate history with MEC vs. FCA benchmark (2008 through 2010) ........... 17 Figure 7A: Clarke LTL rate history with MEC vs. FCA benchmark (2008 through 2010) ....................... 18 Figure 8A: National Fast Freight LTL rate history with MEC vs. FCA benchmark (2008 through 2010) .......................................................................................................................................................................................... 19 Figure 9A: Comox Pacific LTL history with MEC vs. FCA ltl benchmark (2009 through 2010)............ 20 Figure 10A: Comox Pacific TL history with MEC vs. FCA TL benchmark (2009 through 2010) .......... 21 Figure 11A: Quick X’s TL history without discount with MEC vs. FCA tl benchmark (2009 through 2010) .......................................................................................................................................................................................... 22 Figure 12A: Measuring MEC’s carriers against East West carriers’ fuel surcharge rates ....................... 24 Figure 13A: R-Square cromparison by carriers’ relationship between their fuel surcharge movements and movements in Canadian weekly average diesel fuel prices. .............................................. 25 Figure 14A: MEC’s Weighted Average Scores ............................................................................................................ 26

PART 2: FUEL SURCHARGE ANALYSIS

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(US Energy Information Administration)

INTRODUCTION

PURPOSE AND OBJECTIVE

The purpose of this report is to both develop a comparative analysis of less than truckload (LTL), and truckload (TL) fuel surcharge rates within the industry and compare them to Mountain Equipment CO-OP’s (MEC) current service providers, and to recommend fuel surcharge practises that will reduce MEC’s transportation expenses.

By identifying MEC’s past fuel surcharge performance, MEC will be able to better understand where they currently stand as well as what changes need to be made to get where they want to go. This understanding will assist MEC’s logistics team in making better decisions as they conduct negotiations with carriers.

This report will give the logistics team a clear understanding of fuel surcharges, and their correct application. In addition the factors that make up the charges and the methodology that is used to create fuel surcharges will be uncovered. This report will dissect the fuel surcharge and look at its elements separately, giving the reader a greater variety of negotiating options. Finally, this report will package this knowledge so that it may be used as a valuable decision making tool for the logistics team at MEC.

HISTORY OF FUEL SURCHARGES

Fuel surcharges came into effect in Canada during the oil embargo of the 1970’s. Transportation companies were looking for a method by which they could pass on additional cost caused by the embargo. They found their answer in the first Canadian fuel surcharge. The surcharge was designed as a temporary method to allow the transportation companies to adjust to the uncertain outcome of the oil crisis. This initial fuel surcharge was overseen by the Motor Carrier Commission, who was in charge of establishing non-binding fuel surcharge rates to be used by carriers. As prices began to retreat and stabilize in the 1980’s the carriers held on to the surcharge and continued to apply it whenever fuel prices made upward adjustments.

The current reasons for the wide spread use of fuel surcharges can be largely attributed to three factors: rising diesel prices due to speculation, the September 2001 World Trade Centre attacks, and the subsequent military actions in the Middle East. Many of the formulas that are in use were based on fuel prices in or around 2002. Additionally, the earliest available fuel surcharge rate histories posted on most transportation companies’ websites also reference 2002 fuel prices or begin in 2002. Fuel

FIGURE 1A FUEL PRICE HISTORY

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prices steadily rose between 2002 and late 2008, and with this rise there was a subsequent rise in fuel surcharge rates. However, the upward trend was broken by the onset of the “Economic Crisis” which caused fuel prices to fall and freight carriers to lower their fuel surcharge rates.

In the beginning of 2009, carriers began to look at innovative ways of reducing the then lowered surcharge as a strategy to attract business. They also looked at how to use the rate as a bargaining tool.

ESTABLISHING RATES

With an upward trend in fuel prices, questions about fuel surcharges and how to calculate them fairly and accurately become important. From the perspective of carriers, long-term strategies to reduce fuel consumption do not necessarily address the short-term immediate need to deal with volatility in fuel prices. The solution that carriers have successfully employed is the fuel surcharge, which is the topic of this study. Though this solution works favourably for the transportation industry, problems begin to occur when customers seek disclosure, transparency, and understanding in regards to how the charge is calculated and applied. Some carriers become secretive and guarded about their practices, others are more forthcoming though not completely willing to be specific about the factors that they use to create the rates that they charge. Ideally, from a customer’s perspective, freight carriers would only charge the actual amount caused by a change in fuel price, where if fuel prices were to drop or fuel efficiencies were to be found, the charge would no longer be applied.

One of the first steps to create a dynamic fuel surcharge model is to establish an accurate fuel price reference. Transportation companies will often look to sources such as the Canadian Government’s National Resources Canada website or the US Energy Information Administration website where accurate fuel pricing information is available. Additionally, private sector resources such as Kent Marketing Services and Provincial Transportation Associations provide accurate references. All of the methods of calculating fuel surcharges in practice use this information directly or indirectly as the variable in their rates.

There are two basic methods of establishing a fuel surcharge. The first is by following an indexed matrix which is published and widely accessible where fuel surcharges are found by cross referencing applicable values. The second method is to use a formula that takes into account the specific variables that affect the carrier’s cost of doing business, which can be adjusted by inputting a current fuel price.

FUEL SURCHARGES BY COUNTRY

CANADA

In Canada, the method often used to calculate a fuel surcharge is formula based. The Freight Carriers Association of Canada (FCA) publishes weekly surcharge rates that are often used as a reference in the carrier industry. This method has its advantages in that it sets a standardised rate to be charged, it uses the average cost of fuel in Canada and it sets different rates to be charged depending on the capacity or weight of the type of haul. The FCA also provides a reference for cross border movements which take into account the difference in fuel prices between the US and

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Canada. This index is not exactly followed by carriers, as it is not dynamic and cannot reflect regional issues such as the geography of Western Canada or local differences in fuel prices. The FCA model also ignores fuel efficiencies experienced by the individual carriers as they operate in their corridors. Because of this carriers create their own tailored formulas that meet their specific needs.

US

Most American and some Canadian transportation companies that operate in the US use the US matrix system. This matrix takes the national average price of diesel fuel as posted by the US Energy Administration as the indicator as to what fuel surcharge rate will be charged. The price per gallon is first identified by the user and then the corresponding fuel surcharge is charged, depending to the type of cargo. Companies create customized tables for both LTL and TL fuel surcharge rates. Many of the tables that are displayed on-line do not include current price levels. See Table 1A below for an example of a Ranger Express’s matrix.

TABLE 1A RANGER EXPRESS FUEL SURCHARGE TABLE

(Express, 2011)

FORMULA METHOD

The second and most widely used method of calculating fuel surcharges is the use of a formula. The products of the formulas are regularly expressed as a percentage. The percentage is applied in the same manner as a tax, as the dollar amount charged is a percentage of the freight charge before tax. An example of a formula which is recommended to its members by the British Columbia Trucking Association (BCTA) is shown.

Fuel Surcharge = ((C - A) / A) x B Where: A = price per litre of fuel when you last set your freight rate (cents/litre) B = the percentage that fuel represents of your operating costs (percent) C = the current price that you are paying for fuel (cents/litre)

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Example: BCTA Method If you last set your freight rate with a fuel price of 105 cents per litre, fuel represents 25 percent of your operating costs, and the current price of fuel is 135 cents per litre, the fuel surcharge will be: ((135-105)/105) x 25% = 7.14% Note that you do not have to use cents per litre, but can also use dollars per litre, cents per gallon or dollars per gallon.

The Freight Carriers Association of Canada (FCA) uses the same basic formula as the BCTA. They base their rates on the national average price of diesel fuel from May 1998 which at the time was 39cents per litre. They also differentiate types of loads in their calculations depending on whether the shipment is LTL, TL, and Heavy TL. The fuel prices they index are quoted without tax being applied. The fuel price in the example to the right of 135 cents per litre is without tax.

An emerging trend in the TL trucking market is to separate the actual fuel cost of the operation and include it as a line item on the invoice. This method has companies disclosing their true fuel costs and allows customers to have access to fuel receipts if they are requested. This disclosure promotes understanding and trust around the issue of fuel surcharges and removes the charge from the bargaining table. Disclosure also leads to more accurate environmental impact auditing for customers. An example of this formula is seen in the box below.

Example:

135 - 39.0 X 8.8% LTL = 21.7%

39.0 20.7% TL = 53.4.%

23.2% Heavy TL = 57.1

Fuel Surcharge = (C – A) * B

A = price per litre of fuel when you last set your freight rate or base rate (cents/litre or gallon) B = The actual amount of fuel consumed (litres or gallons) C = the price that was paid for fuel (cents/litre or gallon)

B in this formula can be modified to be an established amount of fuel consumed as to allow for ease of invoicing. This is done by dividing the distance traveled by the carrier on route by an agreed upon fuel efficiency rating experienced by the company in MPG or l/km.

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INDUSTRY STANDARDS

All fuel surcharges incorporate a current cost of fuel, a base rate cost of fuel, and an operational cost. For the most part, the single variable that companies agree upon when establishing rates is the given cost of fuel. In the domestic carrier market, the closest thing to a standard practice when creating fuel surcharge rates is the FCA formula. Cross border carriers often use matrices with spreads for fuel charge movements.

Application

Most of the companies that were looked at applied the fuel surcharge as a percentage to the freight cost, though a few intermodal TL carriers also have a per mile rate option for cargo. Intermodal carriers also tend to use a flat fuel surcharge rate which is independent of the volume of the load. When conducting research it was found that all of the industry interviewees felt that fuel surcharges should not be applied to non-transportation or assessorial charges that do not require the engine to be engaged. Exceptions would be services not normally required by MEC such as pumps and cranes.

Communication

Fuel surcharges can be as unique as the carriers that charge them, with tailored variables, base fuel rates, and LTL and TL differentials. The task of comparing or measuring various companies’ rates can be confusing from a customer’s perspective. Carriers use this confusion to their advantage creating an almost incomparable environment for customers as they try to identify who offers the better overall deal. When conducting this study it was found that all of the carriers that were questioned about their fuel surcharge were guarded when asked specifics about their formula, stating that the information was “proprietary”. This shows that an unwillingness of the industry to open disclosure of rates is still strong.

INDUSTRY FUEL SURCHARGE ANALYSIS

This section of the report looks at MEC’s relationship with seven of its major carriers who operate in two main areas of road hauling in MEC’s supply chain. The first area that will be examined is cross border carriers Hercules and YRC Reimer who move merchandise from MEC’s upstream partners in the US. That will be followed by an examination of MEC’s domestic carriers Clarke, Comox Pacific, Day and Ross, National Fast Freight, and Quick X.

DATA USED

Past Invoices

To compile the information needed for this analysis, a sample of 1017 invoices from 2008 to 2010 were taken and analysed. The data taken from each invoice was recorded in separate spread sheets by company and included date, weight, freight charge, fuel surcharge as a percentage and dollar amount, route, and if the load was LTL or TL.

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Fuel Price History

The two sources that were used to create an accurate fuel price history of both Canada and the US were the Canadian Governments National Resources Canada website and the US Energy Information Administration website. This history is necessary as to establish pricing trends, company reaction times, and relationships between the carriers and the index that they gauge their surcharge level from.

THE FCA BENCHMARK

To conduct a comparison of MEC’s carriers, first a benchmark needed to be established by which to measure their level of performance.

While conducting the research for this project it became apparent that many of the carriers in the industry, as well as all of the trucking associations, pointed towards the Freight Carriers Association of Canada (FCA) as their reference when establishing fuel surcharges. In fact, all of the Canadian transport companies that were found to post more than one year of their fuel surcharge rates history on-line, publish the same or very similar rates to the FCA. The broad recognition of this rate source, plus their having data that covered the timeframe of the study, makes it an ideal reference tool for benchmarking MEC’s carriers. The benchmark was created by summing the fuel surcharge percentages over the same period of time as the timeframe of the fuel surcharge information for each carrier. This was done for all LTL and TL fuel surcharge rates.

ANALYTICAL METHODOLOGY

R-Squared is a statistical term saying how good one term is at predicting another. This was used to identify the relationship between the Canadian and US historical fuel price indices and the movement of the fuel surcharge rates that were being charged to MEC within the time frame of the study. To understand the significance of the results, one must be aware that a score of 1 would be a perfect relationship, where a movement in the cost of fuel would result in a perfectly relative movement in a carrier’s fuel surcharge. A score of .7 indicates that there is no conclusive relationship between the factors. Scores also reflect each company’s reaction time to fuel price movement. As so, they also act as good predictors of future movement behaviour by the companies.

All of the carrier’s LTL and TL rates were separated, summed and then divided by a corresponding sum of the FCA’s rate over the same period of time. This produced a percentage of the FCA rate that each carrier charged during the period. The US carriers were also benchmarked against the FCA rates. Additionally, 8 carriers (5 North South and 3 East West) were selected to be compared by the same criteria giving the study an external industry picture of comparable rates.

To give a more accurate picture of MEC’s level of performance, a weighted average was used based on the amount of funds allocated to each carrier from 2008 through 2010.

Sample of Clarkes Data

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INTRODUCTION TO ANALYSIS

The analytical portion of this report is separated into two main parts. First, an industry analysis will look at MEC’s cross border carriers and compare them to selected North and South carriers. In the same section, a comparison of the East West carriers to MEC’s domestic carriers is included. Findings will be reported at the end of each section. Second, an internal analysis will be presented, with the intention of quantifying MEC’s carriers’ behavioural patterns as well as establishing an overall position for MEC in regards to fuel surcharge history.

Consider the following when looking at the results of this section:

Both areas of the analysis look at the information linearly. It is not separated by year; it looks at the whole period in order to include both upward and downward trends in fuel price history.

The report also looks at TL and LTL rates separately.

Industry Analysis Considerations

The inclusion of eight carriers to establish external information about fuel surcharge rate levels will only provide a very basic or limited picture of rate levels in the industry. As this is the case, only direct comparison of the carriers is valid. Assumptions should not be made about the whole industry based on the findings comparing these selected external carriers. To strengthen measurement indicators, the FCA benchmark was selected as a third measure.

Industry Analysis Sections:

Cross Border Analysis

Cross Border Comparison Key Findings

Domestic Analysis

Domestic Comparison Key Findings

Internal analysis considerations

This section will give MEC its most accurate picture of overall performance. The carriers that were selected for this study account for a large percentage of MEC’s total logistics budget. To refine the results to indicate only information about road carriers, all Canada Post information was removed from data sources. Removing this data allows the study to focus on the selected carriers and provide more accurate findings. This part of the study only looks at MEC’s carriers. They are compared using analytical methodology.

Internal Analysis Sections

Internal analysis

Relationship and predictability of MEC’s carriers

Weighted findings

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CROSS-BORDER ANALYSIS

YRC REIMER

YRC Reimer (YRC) is responsible for MEC’s largest cross border road carrier expense with almost $1.3 million dollars being allocated to them from 2008 to 2010. In this period YRC accounted for just over 9.5 % of total road carriage costs, with nearly all of that being cross border traffic.

Through analysis it was found that the most accurate index to account for movements in fuel surcharges was the Canadian average diesel fuel price rates. YRC had an R-squared of .94, indicating a strong symmetry of movements between their fuel surcharge and the Canadian average diesel fuel price rates during the period.

133 of YRC Reimer’s invoices were looked at and it was found that MEC’s primary type of shipment with YRC Reimer is LTL. Therefore, only the LTL fuel surcharge rates will be used for comparison. The result of comparing the fuel surcharge charged to MEC by YRC Reimer against the FCA benchmark rates from 2008 through 2010 is that YRC charged 1.46 times more than the benchmark rate.

FIGURE 2A: YRC REIMER’S RATE HISTORY WITH MEC VS. FCA BENCHMARK (2008 THROUGH 2010)

During this period it is evident that YRC Reimer’s rates are consistently higher than the FCA benchmark.

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YRC LTL Rate

FCA ltl Rate

Carrier Type: Cross Border

Account size: $ 1.3 Million

Relationship strength and predictability of Fuel Surcharge Movement: 0.94

YRC Reimer vs. LTL FCA Benchmark: 1.46

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HERCULES

During the period of study, Hercules was paid just over $280 thousand dollars for freight services for cross border operations. This amount equals roughly 1% of all transportation costs, not including Canada Post. This carrier is responsible for inbound to DC shipments from upstream partners.

Through analysis, it was found that the strongest relationship between fuel price movements and corresponding movement in fuel surcharges exist with the US Energy Information Administration`s weekly average fuel prices with an R-squared result of over .99. This was the highest score of any of MEC’s carriers and indicates that Hercules is very responsive to changes in fuel prices with an almost non-existent lag time when adjusting fuel surcharges on a weekly basis.

When looking at the companies carrying history from 2008 through 2010, a total of 124 invoices were analyzed. It was found that all of the invoices were for LTL shipments and as such the carrier was measured against the FCA LTL benchmark. Hercules charged 1.38 times more than the benchmark for the same period of time.

FIGURE 3A: HERCULES RATE HISTORY WITH MEC VS. FCA BENCHMARK (2008 THROUGH 2010)

Hercules fuel surcharge rates were consistently higher than the FCA Benchmark.

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HERCULES LTL Rate

FCA LTL Rate


Account size: $ 280 Thousand


Hercules vs. LTL FCA Benchmark: 1.38

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INDUSTRY CROSS-BORDER CARRIERS

The companies that were selected for cross border comparison had to be C-TPAT/FAST1 accredited, had to move freight between the US and Canada, and had to disclose their fuel surcharge rate history or provide a matrix based on average weekly fuel prices. The following carriers were selected: AFB Freight Systems, Con-Way, Midland Transport, Ranger Group and Road Runner Transportation Services.

AFB Freight systems

AFB provides a fuel surcharge rate history between May 25, 2009 and December 27, 2010 for both LTL and TL loads. The following results are looking at LTL rates only. (Fuel Surcharges, 2011)

R square against the US Energy Information Administration Index was = .999

2009-2010 LTL FUEL SURCHARGE rates divided by FCA Benchmark = 1.482

Con-Way

Con-Way provides a fuel surcharge rate history between May 25, 2009 and December 27, 2010 for both LTL and TL loads. The following results are looking at LTL rates only. (Con-way, 2011)



Midland Transport

Midland provides a fuel surcharge rate history between May 25, 2009 and December 27, 2010 for both LTL and TL loads. The following results are looking at LTL rates only. (Midland, 2011)



Ranger Group INC.

Ranger provides a fuel surcharge rate history between May 25, 2009 and December 27, 2010 for both LTL and TL loads. The following results are looking at LTL rates only. (Express, 2011)

1 US/Canadian cross border customs security programs.

NAME: AFB FREIGHT SYSTEMS



Vs. LTL FCA Benchmark: 1.48

_____________________________________

NAME: CON-WAY




_____________________________________

NAME: MIDLAND TRANSPORT




_______________________________________

NAME: RANGER GROUP




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Midland Ranger AFB CONWAYRoad

RunnerHercules

YRCReimer

LTL 1.482 1.304 1.482 1.473 1.482 1.380 1.461

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Cross Border Carriers Vs MEC



Road Runner Transportation Services

Road Runner provides a fuel surcharge rate history between May 25, 2009 and December 27, 2010 for both LTL and TL loads. The following results are looking at LTL rates only. (Roadrunner, 2011)



CROSS BORDER COMPARISON KEY FINDINGS

It was found that the MEC Logistics Department paid close to normal fuel surcharges for cross border LTL shipments. When looking at Figure 4A it is apparent that with the exclusion of Ranger, MEC`s fuel surcharge performance is better than the posted performance of the other carriers studied, when measured against the FCA LTL benchmark.

It was found that when comparing Hercules to YRC Reimer, that Hercules is quicker to react by changing fuel surcharge rates to compensate for changes in weekly fuel prices.

Looking at MEC carriers, it was found that over the period of the study Hercules outperformed YRC Reimer with fuel surcharges that were closer to those posted by the FCA, being lower than YRC Reimer’s rates.

It was found that ABF, Midland, and Roadrunner share the same fuel surcharge structure as well as rates. The relationship between movements in fuel prices and movements in fuel surcharge is very strong and proportional for these carriers at 0.99.

The bars shown in light green indicate carriers that were used by MEC. Dark green bars are comparable carriers.

NAME: ROAD RUNNER




FIGURE 4A: MEC’S CARRIERS VS . INDUSTRY FUEL SURCHARGE RATES

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DOMESTIC ANALYSIS

DAY AND ROSS

During the period of the study Day and Ross transported goods mainly within Canada. They were used to transfer inventory between retail locations, to ship out bound from the DC, and to a lesser extent to import goods from the US. The carrier was used extensively in central and Eastern Canada. Day and Ross was the recipient of over 17% of MEC’s logistics spending with a total of $2.3 million dollars.

This study looked at a total of 280 invoices that were charged to MEC by Day and Ross. Of the invoices that were studied, 178 were LTL and 102 were TL. Consequently, Day and Ross were measured against both the LTL and TL FCA indices separately.

Day and Ross LTL

When looking at the relationship of movement and response time to changing fuel prices, it was found that Day and Ross scored a R square of .926 when adjusting fuel surcharge rates.

When comparing Day and Ross to the FCA LTL benchmark, it was found that MEC was charged 0.958 times the benchmark rate. Day and Ross came under the benchmark.

FIGURE 5A: DAY AND ROSS LTL RATE HISTORY WITH MEC VS. FCA BENCHMARK (2008 THROUGH 2010)

Day and Ross’s LTL fuel surcharge rates closely followed the FCA benchmark rates.

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Day & Ross LTL Rate

FCA LTL RATE

Carrier Type: Domestic

Account size: $2.3 Million

Relationship strength and predictability of Fuel Surcharge Movement: LTL 0.93, TL 0.976

DAY & ROSS vs. the FCA Benchmark: LTL 0.93, TL 0.82

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Day & Ross TL Rate

FCA TL Rate

Day and Ross TL

When looking at the relationship of movement and response time to changing fuel prices it was found that Day and Ross scored an R square of .9764 when adjusting fuel surcharge rates. This relationship is slightly stronger than the LTL relationship.

When comparing Day and Ross to the FCA TL benchmark it was found that MEC was charged 0.821 times the benchmark rate. Again, Day and Ross came under the benchmark.

Day and Ross’s LTL fuel surcharge rates closely followed the FCA benchmark rates.

Day and Ross Continued…

Carrier Type: Domestic



DAY & ROSS vs. the FCA Benchmark: LTL 0.93, TL 0.82

FIGURE 6A: DAY AND ROSS TL RATE HISTORY WITH MEC VS. FCA BENCHMARK (2008 THROUGH 2010)

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FCA LTL Benchmark

CLARKE

During the period of the study, Clarke was used primarily for inbound intermodal to DC Canadian freight. Clarke was the recipient of just under 3 percent of MEC’s logistics expense with $390 thousand dollars spent on their service.

This study looked at 117 invoices from within the study period, all of which were based on a flat rate which didn’t change for TL shipments (all but 6 invoices were for cargo less than 10,000 lbs.).

When looking at the relationship of movement and response time to changing fuel prices, it was found that Clarke scored an R square of .930 when adjusting fuel surcharge rates.

When comparing Clarke to the FCA LTL benchmark it was found that MEC was charged 1.559 times the benchmark rate. Clarke came in above the benchmark.

Clarke’s fuel surcharge rates were the farthest above the FCA benchmark for any of MEC’s studied carriers.

Carrier Type: Intermodal Domestic



Clarke vs. LTL FCA Benchmark: 1.56

FIGURE 7A: CLARKE LTL RATE HISTORY WITH MEC VS. FCA BENCHMARK (2008 THROUGH 2010)

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NFF FSC Rate

FCA Benchmark

NATIONAL FAST FREIGHT

During the period of the study, National Fast Freight was used primarily for inbound intermodal to DC freight from venders across Canada. This company was the recipient of just over 4 percent of MEC’s logistics expense with $575 thousand dollars spent on their service.

This study looked at 154 invoices from within the study period, all of which were based on a flat rate which didn’t change for TL shipments (all but 17 invoices were for cargo less than 10,000 lbs.).

When looking at the relationship of movement and response time to changing fuel prices it was found that National Fast Freight scored an R square of .860 when adjusting fuel surcharge rates.

When comparing National Fast Freight to the FCA LTL benchmark it was found that MEC was charged 1.15 times the benchmark rate. National Fast Freight came in above the

benchmark.

National Fast Freight charged moderately higher rates than the FCA benchmark though their rates did intersect at a few points.




National Fast Freight vs. LTL FCA Benchmark: 1.15

FIGURE 8A: NATIONAL FAST FREIGHT LTL RATE HISTORY WITH MEC VS. FCA BENCHMARK (2008 THROUGH 2010)

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COMOX PACIFIC EXPRESS

Comox Pacific is used by MEC outbound to its Victoria retail store. This carrier started with MEC in March of 2009, and as so it has a reduced time period. During the period of the study close to $148 thousand dollars were allocated to Comox Pacific’s services.

This study looked at a total of 90 invoices that were charged to MEC by this company. Of these invoices, 35 were LTL and 55 were TL. Consequently, Comox Pacific was measured against both the LTL and TL FCA indices separately.

Comox Pacific LTL

When looking at the relationship of movement and response time to changing fuel prices it was found that Comox Pacific scored an R square of .914when adjusting fuel surcharge rates.

When comparing Comox Pacific to the FCA LTL benchmark it was found that MEC was charged 1.27 times the benchmark rate. Comox Pacific came above the benchmark.

FIGURE 9A: COMOX PACIFIC LTL HISTORY WITH MEC VS. FCA LTL BENCHMARK (2009 THROUGH 2010)

Comox Pacific’s LTL history is shorter that most carriers beginning in 2009. They consistently charged higher that CFA benchmark rates.

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Comox Pacific FSC

FCA LTL Benchmark

Carrier Type: Domestic (Victoria)



Comox Pacific vs. the FCA Benchmark: LTL 1.27, TL 0.64

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Comox Pacific TL

When looking at the relationship of movement and response time to changing fuel prices it was found that Comox Pacific scored a R square of .746 when adjusting fuel surcharge rates. This relationship is quite weak where movements in fuel prices are not reflected in timely adjustments to fuel surcharge rates.

When comparing Comox Pacific to the FCA TL benchmark it was found that MEC was charged 0.644 times the benchmark rate. Comox Pacific comes in under the benchmark.

FIGURE 10A: COMOX PACIFIC TL HISTORY WITH MEC VS. FCA TL BENCHMARK (2009 THROUGH 2010)

Comox Pacific consistently charged lower than FCA TL benchmark rates as seen in Figure 10A above.

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Comox Pacific FSC

FCA TL Benchmark

Comox Pacific continued…

Carrier Type: Domestic (Victoria)



Comox Pacific vs. the FCA Benchmark: LTL 1.27, TL 0.64

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QUICK X TL Rate

FCA TL Benchmark

QUICK X

Quick X was used by MEC as a TL carrier in most cases with very little freight being sent LTL with them. This company stands out because of the 25% fuel surcharge discount that it offers on 53 foot intermodal shipments compared to their regular road fuel surcharge rates. Quick X was the recipient of just over 23 percent of MEC’s logistics expense with close to 3.2 million dollars spent on their service.

This study looked at 111 invoices from within the study period. There were 4 LTL: 47 with the 25% discount of the fuel surcharge, and 60 at their regular fuel surcharge rate. With the discount used for intermodal shipments, the relationship between fuel price movement and the movement in fuel surcharge rates is not conclusive with an R square score of .351. When discounts are removed from the data, Quick X scores an R square of .846.

When comparing Quick X to the FCA TL benchmark it was found that MEC was charged 0.713 times the benchmark rate including the intermodal discount, and they were charged .800 when the discounts are removed from the data. Quick X comes in under

the benchmark in both cases.

Quick X’s TL rate history falls below the FCA benchmark as shown in figure 11A. This figure does not include the discount applied to intermodal shipments with this carrier. When the discount rate is included the Quick X trend line is very jagged.



Relationship strength and predictability of Fuel Surcharge Movement: 0.85 (*with discount removed.)

National Fast Freight vs. TL FCA Benchmark: 0.80 without discount, .71 with discount.

FIGURE 11A: QUICK X’S TL HISTORY WITHOUT DISCOUNT WITH MEC VS. FCA TL BENCHMARK (2009 THROUGH 2010)

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INDUSTRY DOMESTIC CARRIERS

This report looked at comparable domestic carriers as to establish MEC’s position in regards to industry fuel surcharge rates. It was found that only three carriers met the requirements needed to be compared to MEC’s carriers. Additional companies contacted were unwilling to share information, or were unresponsive to requests for their rate history. Because of this, websites were the only resource available to gather historical information for these companies. Only Maritime Ontario, Manitoulin, and CCT Trucking post history as far back as 2008 and 2009, so they were selected to represent the industry. As with the cross border carriers it was necessary that the carriers be C-TPAT/FAST approved and in this case carry East West.

Maritime Ontario

Maritime Ontario meets the requirements mentioned above. They post their rate history on their website going back to 2008. Their posted fuel surcharge rates for LTL and TL are identical to the rates posted by the FCA for both types of shipment. As so, they reinforce the FCA standard as the benchmark. Their relationship between movements of the fuel surcharge and movements in the cost of fuel was perfect, with an R square of 1.00. (Maritime-Ontario, 2011)

Manitoulin Transport

Manitoulin Transport meets the requirements mentioned above. They post their rate history on their website going back to 2008. Their posted fuel surcharge rates for LTL and TL are identical to the rates posted by the FCA for both types of shipment. As so, they reinforce the FCA standard as the benchmark. Their relationship between movements of the fuel surcharge and movements in the cost of fuel was perfect with an R square of 1.00. (Manatoulin, 2011)

CCT Canada Trucking

CCT meets the requirements mentioned above. They post their rate history on their website going back to late 2009. Their posted fuel surcharge rates for LTL and TL are slightly higher than the rates posted by the FCA for both types of shipment. The LTL over the period was 1.106 times the benchmark and the TL was 1.047 times the benchmark. The relationship between movements in the fuel surcharge and the cost of fuel was an R square of .909 for LTL and .913 for TL. (CCT, 2011)

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DOMESTIC COMPARISON KEY FINDINGS

By conducting research and comparing the individual data of each carrier the following findings were identified:

The East West carriers that record their past rate history online closely follow, or are identical to the FCA published rates.

The fuel surcharge rate used by Quick X was lower than both Day and Ross’s and the FCA benchmark. This is significant because they are the largest carrier by volume in the study.

The relationship between fuel surcharge adjustments and movements in fuel prices was strongest for Day & Ross in the TL market, and for YRC Reimer in the LTL market. The relationship was found to be lowest for Comox Pacific in the TL market and lowest for National Fast Freight in the LTL market.

When comparing domestic LTL rates it was found that Clarke uses a US style matrix based on the US Energy Information Administration’s weekly average diesel prices to establish their fuel surcharge rates for Canada.

Figure 12A compares the fuel surcharge rates paid by MEC to domestic carriers that provided their history for this study. The red line indicates the FCA benchmark. The carriers to the right of Quick X are the carriers that represent the industry as East West carriers. Fuel surcharge rates are clearly comparable.

MEC’s fuel surcharge performance is spit by the FCA benchmark and the domestic carriers’ rates.

FIGURE 12A: MEASURING MEC’S CARRIERS AGAINST EAST WEST CARRIERS’ FUEL SURCHARGE RATES

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INTERNAL ANALYSIS

This section of the report focuses solely on the information that was gathered from MEC’s invoices. It compares the characteristics that were separated in the analysis of each of MEC’s carriers as to determine how they compare to each other, and how they compare to the FCA benchmark. This section looks at two major findings. First, the overall R square findings are presented. Second, the weighted average of all of the fuel surcharge rate information is presented.

RELATIONSHIP AND PREDICTABILITY OF MEC’S CARRIERS

The following figure shows the relationship between the movements in fuel prices and the relative timely movement of fuel surcharges for each of the carriers by both LTL and TL movement types. Figure 13 A is a comparison of all of the R squares of MEC’s carriers. A higher bar indicates that the company is more likely to raise or lower fuel surcharges based on fuel price movements.

In periods of rapid upward movements in fuel prices it would be more probable that the lower bar carriers wouldn’t adjust rates as quickly. Additionally, companies with higher bars are also more likely to use a formula. This information will allow MEC to anticipate fuel surcharge movements in the short run, and on a company by company basis. MEC will be able to make decisions about timing of shipments as to take advantage of quicker or slower reaction time.

(The red dashed line at 0.70 indicates the minimum value for accurate prediction)

FIGURE 13A: R-SQUARE COMPARISON BY CARRIERS’ RELATIONSHIP BETWEEN THEIR FUEL SURCHARGE MOVEMENTS AND MOVEMENTS IN CANADIAN WEEKLY AVERAGE DIESEL FUEL PRICES.

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WEIGHTED FINDINGS

To more accurately rate MEC’s performance over the period of the study, all of the LTL and TL FCA scores of the carriers were combined and weighted by using the total percentage of freight costs allocated to each carrier (see appendix (1)). When calculating the weighted averages, Canada Post data was removed.

The weighted average of fuel surcharge rates paid compared to the FCA formula creates an indicator that MEC can use to measure its performance in the future. It also gives MEC a clear picture of which companies influence their average the most and in turn where to focus negotiations (see appendix (2)).

It was found that the weighted average amount of fuel surcharges paid by MEC for LTL shipments was 1.25 times the FCA benchmark rate. Additionally, it was found that the weighted average of the TL shipments was 0.73 times the FCA benchmark.

To find the overall weighted average the data needed to be broken down further. First, the percentage of invoices found to be LTL or TL that were identified while taking the surcharge rate sample history for each carrier was assumed to be accurate. Next, the total expense for each carrier was divided by percentages found in the sample invoices, and the total sum of LTL and TL expenses for the carriers in the study were summed. Finally, the LTL and TL totals were summed to determine the total expense for each shipment type. The TL and LTL total sums were divided by the total expense to identify their influence. When using the weights of LTL (49.5) to TL (50.5) MEC’s overall weighted score versus the FCA benchmark is 0.99. This score indicates that MEC’s global performance when looking at the seven carriers in the study from 2008 through 2010 is .01 below the combined average of LTL and TL fuel surcharge rates published by the Freight Carriers Association of Canada.

FIGURE 14A: MEC’S WEIGHTED AVERAGE SCORES

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NEGOTIATING FUEL SURCHARGES

JUSTIFICATION

The case for the fuel surcharge is that as fuel prices rise, companies don’t have time to adjust their freight rates which equates to an unexpected loss of revenue. Customers understand this reasoning and in good faith hand over the price differential to the carriers in the form of a fuel surcharge. In principle, the fuel surcharge is a perfect hedging strategy.

The case against the current use of the fuel surcharge is threefold: carriers are secretive about the actual cost of the fuel used per trip; carriers are secretive about their fuel to operational cost ratio; and carriers are secretive about the actual fuel efficiency experienced by their fleets. When conducting this study, all of the carriers that were contacted stated that the fuel consumption data used in fuel surcharge formulas was “proprietary.” Instead of using the revenue as a perfect hedge against variation, carriers are using it as a bargaining tool where they mix the rate with their overall freight rate creating a vague costing structure. This charge was designed to keep pace with rising fuel costs, not to provide an additional source of revenue. The application of this fuel surcharge should ideally be transparent.

MEC’S BARGAINING POSITION

The ability of MEC to affect a carrier’s fuel surcharge rates is based on the importance of the MEC account in the eyes of the carrier. This importance can be found by looking at the total revenue or volume a carrier receives from MEC and dividing it by the carrier’s total overall revenue or volume. Without information about the specific size of a company it is not possible to accurately measure MEC`s bargaining position. The carriers that are examined in this study are large organizations with the exception of Comox Pacific Express. Outside of company policies that carriers may have in place that allow for flexibility, MEC’s bargaining position is low to medium. As a result, financial gains in fuel surcharge negotiation can be expected to be small to medium.

DISCLOSURE

The controversial element of the fuel surcharge formula is the operational cost percentage that is used to calculate surcharge rates. This element, derived from fuel consumption, is in fact an opportunity for MEC to express its concern outside of the purely economic realm. MEC has built a public image as a leader in terms of environmental awareness, environmental reporting and sustainability. This well-known position allows for MEC to rationally express their goal of further reducing their carbon footprint to carriers. By not disclosing actual fuel consumption data, carriers are able to pass on their economic and environmental inefficiencies to MEC, which increases MEC’s carbon footprint, and creates additional expenditures. If a carrier were to disclose information based on environmental reporting requirements, MEC would not use this information to reduce fuel surcharge rates, but instead would use the information to better track MEC’s actual carbon footprint. This stated, the actual probability that carriers will disclose this information is currently low. MEC can look at other methods of assuring that carriers are making an effort to reduce their emissions.

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IMPROVING EFFICIENCY

Measuring the effect of transportation on the environment is an important step to understanding an organization’s social and environmental impact. The transportation industry as a whole in North America is aware of the expectations that society has of them to make changes where possible to lessen their impact in these areas. With the existence of changing technology, and programs to

reduce fuel consumption and contamination, it falls to the individual carriers to make decisions to innovate or to enrol in programs as part of making an effort to improve operations. It falls on customers of these carriers to insist that they improve their operations. Making carriers more fuel efficient will in the long run equate to lower fuel surcharge rates.

An example of a carrier making an effort to reduce fuel consumption, or being aware of their environmental impact is by enrolment in the SmartWay Transport Partnership. This program provides information about how transportation companies can reduce fuel consumption and improve emissions. This program also provides financial assistance to companies that are looking to upgrade to more environmentally friendly equipment. They also provide technical expertise when considering equipment and practices that companies can use to reduce fuel consumption. Though this is a US government program close to 200 Canadian companies are currently partners (EPA, 2010). Of the carriers studied Clarke, Day and Ross, National Fast Freight, and Quick X are already SmartWay partners. According to economic theory, reductions in cost experienced by carriers should result in lower operational costs which in turn will lower fuel surcharge rates being charged in the future.

Reductions in fuel consumption that carriers can demonstrate to MEC through disclosure can be looked at as improvements in the fuel surcharge rate. These improvements can be measured and used to directly offset fuel surcharge costs from MEC’s perspective. For example, if a carrier were charging a TL rate of 25% and they were able

to reduce fuel consumption by 25%, MEC would consider their fuel surcharge to be 20% when comparing it against other carriers. (For examples of SmartWay findings, see appendix (4))

“All SmartWay transportation programs result in significant, measurable air quality and/or greenhouse gas improvements while maintaining or improving current levels of other emissions and/or pollutants.”

(EPA, 2010)

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UPDATING THE BASE RATE

Another approach to minimize fuel surcharges is to ask that carriers update their base rates as to better reflect current market conditions. For example, the base rate currently being used by the FCA is based on a 1998 fuel price of 39 cents per litre. This rate could be updated to double that, where the differential is transferred on to the freight rate. This would allow for more of the fuel surcharge that is currently being charged to pass over to the freight rate where it can be better measured against competitors and reduce the percentage value of the surcharge. An important question to ask is how often a carrier updates their base fuel rate. Additionally the FCA suggests that “Rolling the current fuel surcharge percentages into the rates” as a recommended form of ending fuel surcharges. (Sirgay, 2011) It should be noted that base rates should remain below any probable future fuel price as to avoid having a trucking company simply up their profitability if the price of fuel drops below the base rate.

CHANGING CULTURE

Companies in the TL market are moving towards fuller disclosure, such as using the FCA formula or practicing full disclosure. As an example, the path that DCT Chambers is taking for fuel surcharge disclosure for its TL shipments will be explained. DCT Chambers specializes in hauling TL bulk products such as woodchips and mine tailings throughout B.C. and Northern Alberta. This company practices surcharge disclosure where approximately 95% of DCT’s customers have their fuel surcharge disclosed. It was indicated that “about 70%” of the other companies in DCT’s market are also changing the way that they charge the fuel surcharge. It was also reported that it isn’t difficult for companies to identify the true cost of fuel that a haul incurs. Therefore, calculating the actual variation in fuel costs to customers is a simple operation. (See appendix (3))

SUMMARY

This report has established a full understanding of the origins, composition, application, and industry standards around the fuel surcharge issue. These sections were included to provide the reader with a solid understanding of the fuel surcharge.

The report then provides the reader with a comparison of MEC’s seven selected carriers, with eight comparable carriers from the industry. The report went on to establish a score on a benchmark for MEC, where MEC can gauge future performance. It also provided a method grading carriers scoring carriers based on their R-Squared score. MEC will be able to use these methods to better measure their carriers performance in the area of fuel surcharges.

The information that was provided in the negotiation section will allow the MEC logistics team to take new approaches to negotiating fuel surcharges with carriers. This will result in more favourable outcomes. The approaches look at alternative solutions, where gains from negotiation can be measured in cost reduction, fuel efficiency, and disclosure. All of which will lead to lower fuel surcharges in the future.

When all sections of this report are combined the user will acquire an overall understanding of MEC’s fuel surcharge position, and be prepared for prospective negotiations.

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RECOMMENDATIONS

There are two areas of recommendation that can be made through the findings in this section of the report.

Fuel Surcharge Information Management

It is recommended that MEC continuously monitor its fuel surcharge rate percentages as to measure their performance against the FCA benchmark. This should be done by creating a database where fuel surcharge information can be stored, sorted, and analysed. The information that is needed to establish performance levels are as follows: date of cartage, name of carrier, type of shipment (LTL or TL), the carrier’s fuel surcharge rate, total freight charge, the Canadian average fuel cost, and the corresponding FCA benchmark rate. Additionally, it is recommended that electronic invoicing be requested from all carriers to reduce or eliminate input time. Moreover, it is recommended that the reporting period be on an annual basis.

Benefits include:

The ability to measure MEC’s overall performance in the area of fuel surcharge.

The ability to gauge future carrier’s fuel surcharge rates, thereby qualifying them against MEC’s performance level.

The ability to identify discrepancies in charges and recuperate lost revenue.

Negotiating Fuel Surcharge Rates

It is recommended that MEC develop a system to identify their bargaining position relative to each of their carriers. Depending on the position, tailor made strategies should be implemented with the goal of increasing fuel surcharge disclosure, as this will result in fair rates being charged to MEC.

It is recommended that all new fuel surcharge rates be monitored against the FCA benchmark rate established in this study by using the “Fuel Surcharge Analysis Tool” that is on the CD attached to this report. This will indicate to the logistics team whether the rate will have a positive or negative impact on their overall performance

It is recommended that improvements in fuel efficiency be a main topic in any future carrier negotiations. Reductions in fuel consumption should carry the same weight as a fuel surcharge discount allowing MEC to improve its triple bottom line.

It is recommended that as part of their carrier selection policy, MEC require potential new carriers to be “SmartWay Transport Partners”, and that carriers provide an annual report showing the results of steps that the company has taken and will take to reduce fuel consumption.

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BIBLIOGRAPHY

FCA. (2011, March). Retrieved April 13, 2011, from The Freight Carriers Association of Canada: http://www.fca-natc.org/INFO/FLCDN11.htm

Fuel Surcharges. (2011, May). Retrieved April 25, 2011, from ABF Website: http://www.abfs.com/resource/fuelsurcharge.asp?NCHK=SPLM

CCT. (2011, May). Fuel Surcharge. Retrieved April 25, 2011, from CCT Canada Website: http://www.cctcanada.ca/?q=fuel_surcharge

Con-way. (2011). LTL Fuel Surcharge Table . Retrieved April 28, 2011, from Con-way Website : https://www.con-way.com/en/tools_pricing/freight/fuel_surcharge/fuel_surcharge_table/

EPA. (2010, May 5). Bacic Information. Retrieved April 28, 2011, from Smartway Partnership: http://www.epa.gov/smartwaylogistics/basic-information/index.htm

Express, R. (2011, April 26). Ranger Express. Retrieved April 26, 2011, from Fuel surcharge Table: http://www.rangerexpress.com/resources/fuelsurcharge/

Manatoulin. (2011, May). Mtl Fuel. Retrieved April 25, 2011, from Manatoulin Transport website: http://www.manitoulintransport.com/cgi-bin/db2www/mtlfuel.mac/Domestic

Maritime-Ontario. (2011, May). Fuel Surcharge History. Retrieved May 5, 2011, from M O Website: http://www.m-o.com/fuelsurcharge/FuelSurchargeHistory.htm

Midland. (2011, April). Fuel Surcharge Page. Retrieved April 27, 2011, from Midland Transport: https://www.midlandtransport.com/FuelPrompt.aspx

Roadrunner. (2011, May). Fuel Surcharge. Retrieved April 25, 2011, from http://www.rrts.com/Tools/FuelSurcharge.aspx

Sirgay, D. J. (2011, March). Fuel Cost Increases Frequently Asked Questions . PowerPoint Presentation. Ontario, Canada: The Freight Carriers Association Of Canada.

US Energy Information Administration. (n.d.). Retrieved April 6, 2011, from Weekly Gasoline and Diesel Prices: http://www.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_w.htm

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APPENDENCES

APPENDIX (1) FREIGHT EXPENSES 2008 TO 2010

Freight Expenses (2007 - 2010) 2010

Vendor Name 2008 2009 2010 Grand Total

Percent

QUIK X TRANSPORTATION INC 517,324

1,321,212

1,352,114

3,190,650

30%

MAPLE FREIGHT PARTNERSHIP

749,107

729,159

942,098

2,420,364

21%

DAY & ROSS INC. 1,614,862

351,644

412,094

2,378,600

9%

YRC REIMER 427,746

452,862

409,291

1,289,900

9%

PANALPINA 537,903

263,123

238,177

1,039,203

5%

NATIONAL FAST FREIGHT 191,262

185,689

198,269

575,220

4%

FEDERAL EXPRESS 91,885

113,340

148,710

353,935

3%

CLARKE INC. 130,284

137,057

122,017

389,358

3%

PUROLATOR COURIER LTD. 102,460

90,643

92,649

285,752

2%

COMOX PACIFIC EXPRESS LTD. 55,568

92,025

147,593

2%

GREENLIGHT COURIER LTD. 78,721

69,821

79,720

228,263

2%

UNITED PARCEL SERVICE 101,727

67,021

76,936

245,685

2%

HERCULES 117,199

106,996

58,022

282,218

1%

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APPENDIX (2) WEIGHTED AVERAGES

Weighted Average Scores Vs. the FCA Benchmark LTL %

Spending Score Weight

DAY & ROSS INC. 9.3 0.96 32% YRC REIMER 9.2 1.46 32% NATIONAL FAST FREIGHT 4.5 1.15 15% CLARKE INC. 2.8 1.56 10% COMOX PACIFIC EXPRESS LTD. 2.1 1.27 7% HERCULES 1.3 1.38 4% Total 29.2 Weighted Average LTL = 1.247 TL %

Spending Score Weight

QUIK X TRANSPORTATION INC 30 0.71 72.5% DAY & ROSS INC. 9.3 0.82 22.5% COMOX PACIFIC EXPRESS LTD. 2.1 0.64 5% Total 41.4 Weighted Average TL = 0.7318

APPENDIX (3) KEY INTERVIEWS

Dave Sirgey (President)

Freight Carriers Association of Canada

This interview took place on April 14th at approximately 1:30 pm. Mr. Sirgey provided information as to the formula for the FCA’s weekly Canadian and Cross Border fuel surcharge rates. Mr. Sirgey also provided an explanation as to the FCA’s recommended negotiating policies around the fuel surcharge issue. National Fast Freight, Quick X, and YRC Reimer are all members of this association.

Greg Kolesniak (Policy Analyst, MPP)

BC Trucking Association

This Interview took place on April 12th at approximately 3:00 pm. Mr. Kolesniak indicated that the association recommends a basic formula to calculate fuel surcharges to its members. He indicated that the association used to publish a rate table for its members though the table was abandoned because it was no longer relevant. Mr. Kolesniak also indicated that a new issue that the association is promoting is the recovery of HST now applied to fuel. He stated that the industry intends to make this an invoiced item and pass it on to customers.

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Ken Martin (Quality Assurance & Compliance Manager)

Van-Kam Freightways

The Interview with Mr. Martin also took place on April 12th at 1pm. Mr. Martin was not permitted to share information as to how his company calculated its fuel surcharge stating that the information is “Proprietary”. He did however provide information as to the history of fuel surcharges as well as information about the now defunct Motor Carrier Commission’s (MCC) role in the development of fuel surcharge policy. Mr. Martin also indicated that under the MCC’s guidelines that assessorial activities that required power assistance from the motor of a vehicle such as the use of pumps or cranes could have a fuel surcharge attached to the cost of the activity.

James Patterson (Marketing & Project Manager)

DCT Chambers

This interview took place on April 12th at 10 am. DCT Chambers specializes in hauling TL bulk products such as woodchips and mine tailings throughout B.C. and Northern Alberta. Mr. Patterson provided information about how his company calculates its fuel surcharges. He also explained their practice of actual fuel cost and surcharge disclosure. He stated that 95 % of DCT’s customers have their fuel surcharge disclosed. He indicated that “about 70%” of the other companies in DCT’s market are also changing the way that they charge the fuel surcharge. Mr. Patterson also indicated that it isn’t difficult for companies to identify the true cost of fuel that a haul incurs, and as so passing on the actual variation in fuel costs to customers is simple operation.

Other Parties contacted:

Concorde

Challenger Motor Freight

Speedy Transport

Bison Transport

APPENDIX (4) SMARTWAY TRANSPORT PARTNERSHIP: INNOVATIVE CARRIER STRATEGIES

Truck and rail transportation provides a cost-effective means to transport much of America’s freight.

Truck and rail fleets can take simple actions to make ground freight more efficient and cleaner for the

environment. The following technologies and strategies can help reduce fuel consumption and

emissions from freight trucks.

Idle Reduction

Several technologies and practices can be used to assist drivers in reducing truck idling. Reducing or

eliminating prolonged idling of long-haul trucks can save up to 1,000 gallons of fuel per truck each

year, reduce pollution emissions, and lower engine maintenance costs. The use of one of several idle

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control technologies such as auxiliary power units (APU) and truck stop electrification (TSE) that

provides heat, air conditioning, and electrical power can minimize fuel consumption.

"A Glance Clean Freight Strategies: Idle Reduction”

Improved Aerodynamics

In recent years, manufacturers have focused considerable attention on improving truck tractor

aerodynamics and have therefore achieved significant gains in fuel efficiency. Using a streamlined

profile tractor with aerodynamic devices (roof fairing, cab extenders, and side fairings) can reduce fuel

consumption up to 600 gallons and eliminate over five metric tons of greenhouse gas emissions per

year compared to a typical classic profile tractor. Trailers can be improved through aerodynamics

simply by reducing the tractor-trailer gap, securing loose tarpaulins, and on flatbed trailers, arranging

cargo to keep the outline of the total load as low and smooth as possible.

Improved Freight Logistics

Improved freight logistics can optimize trucking operation efficiency, saving fuel and increasing profits

for trucking companies. Logistics strategies include load matching, more efficient routing and

scheduling of vehicles, and improved receiving policies. Better load matching, which ensures full

trucks, improves the efficiency of trucking operations, allowing carriers to carry the same amount of

freight with fewer vehicle miles of travel. Not only does this help profitability, but it reduces fuel use

and emissions. Trucking companies can make use of routing and scheduling software to structure

more efficient truck routes. Changes to loading dock and receiving policies, such as allowing for early

truck arrivals, lets trucking companies more productively utilize their vehicle fleets, thereby saving

fuel and increasing profitability. For a long-haul carrier that operates 15 percent of miles without a

load, reducing empty mileage by just one percent can over 100 gallons of fuel and eliminate over one

metric ton of greenhouse gas emissions per truck each year.

Automatic Tire Inflation Systems

Automatic tire inflation systems monitor and continually adjust the level of pressurized air to tires,

maintaining proper tire pressure even when the truck is moving. Automatic tire inflation systems can

extend tire life by 8 percent. Installing an automatic tire inflation system on the truck drive and trailer

axles can save over $200 per year in tire replacement costs and tire pressure inspection time.

Automatic tire inflation systems can reduce fuel consumption by over 100 gallons per year for a typical

combination truck, resulting in annual cost savings of about $170 and the elimination of over one

metric ton of greenhouse gas emissions.

Wide-base Tires

Wide-base tires on new production trucks can reduce rolling resistance, improve fuel economy, and

offer substantial fuel cost savings. Wide-base tires can improve fuel economy by 2 percent or more

compared to equivalent dual tires. By using wide-base tires, a typical long-haul truck could save over

400 gallons of fuel per year, resulting in cost savings of over $600, and reduce greenhouse gas

emissions by four or more metric tons annually. A single wide-base tire costs about the same as two

equivalent dual tires and a single wide-rim wheel costs less than two standard wheels. If wide-base

tires and wheels are installed on a new truck, the initial cost savings can reach $1,000.

Driver Training

Driving practices can have a large impact on truck fuel economy. Even highly experiences drivers can

enhance fuel economy using simple techniques like cruise control, coasting whenever possible, limiting

use of cab accessories, smooth and gradual acceleration, progressive shifting (up shifting at the lowest

rpm possible), reducing maximum freeway speeds, and limiting truck idling and stops. Driver training

can reduce fuel consumption by 5 percent or more, saving more than $1,200 in fuel costs and

eliminating about eight metric tons of greenhouse gas emissions per truck each year. For a typical

long-haul truck, the annual fuel cost savings could recover the initial cost of driver training within two

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years.

Low-Viscosity Lubricants

Low-viscosity synthetic and semi-synthetic lubricants reduce friction losses in a truck’s drive train,

transmission, and its engine, saving fuel and reducing emissions. Synthetic transmission and axle

lubricants can improve fuel economy by at least 0.5 percent in the summer and two percent in the

winter. Replacing all conventional transmission lubricants with low-viscosity products saves fuel with

little or no additional cost. The combined effect of low-viscosity synthetic engine oils and drive train

lubricants can improve fuel economy by about three percent, saving nearly 500 gallons of fuel and

eliminating five metric tons of greenhouse gas emissions per year for a typical freight truck.

Reducing Highway Speed

Truck fuel economy drops significantly as speeds rise above 55 mph. By limiting top highway speeds,

trucks can save fuel, reduce emissions, and prolong engine life. For a typical long-haul truck, reducing

highway-driving speed from 70 mph to 65 mph could save nearly $1,500 in fuel costs and eliminate

nearly ten metric tons of greenhouse gas emissions each year. Because engine life is directly related

to the amount of fuel burned, reducing driving speed can save on engine repair costs. Maximum truck

driving speeds can be limited through electronic engine controls, driver-training programs, or incentive

programs that reward drivers for staying within set limits. Nearly all new truck engines in use today

are electronically controlled and the cost of changing the maximum speed setting on these engines is

negligible.

Weight Reduction

Using components made of aluminum or other lightweight materials can reduce the empty truck

weight, known as the “tare weight,” thereby improving fuel efficiency. Truck tractors can reduce

weight by using components such as cast aluminum alloy wheels and aluminum axle hubs. The

potential for weight savings is even greater in the truck trailer, using lightweight components such as

aluminum roof posts, upright posts, and floor joists. Light weight components can reduce truck weight

by as much as 3,000 pounds. This weight reduction could save 200 - 500 gallons of fuel and reduces

greenhouse gas emissions by 2 to 5 metric tons per truck annually.

Intermodal Shipping

Using intermodal ground freight transport makes it possible to combine the best characteristics of

trucked and railed freight, especially for shipments over 500 miles. Using innovative intermodal

options like trailer on flat car (TOFC) and container on flat car (COFC) can improve efficiency and save

money. For shipments over 1,000 miles, using intermodal transport can cut fuel use and greenhouse

gas emissions by about 65 percent, compared to a truck-only move.

Hybrid Powertrain Technology

Hybrid vehicles have two propulsion power sources, making it possible to capture energy otherwise

lost during braking and provide boost to the main engine. Hybrid vehicles can provide roughly $2,000

in annual fuel savings when used in stop and go freight applications like parcel delivery service.

ADDITIONAL RESOURCES FOUND ON ACCOMPANYING CD.

1. Excel information tables and workbook

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2. PowerPoint presentation provided by the Freight Carriers Association of Canada

3. Fuel Surcharge Analysis Tool

Fuel Surcharge Performance Report

Business

fuel surcharge analysis

fuel prices

fuel efficiency

fuel surchargehistory

understanding fuel surcharges

negotiating fuel surcharges

corresponding fuel surcharges

history of fuel surcharges