Fuel Surcharges: What does the future hold?

by Canadian Shipper

MISSISSAUGA, Ont. — The future viability of current fuel surcharge strategy, a necessary measure adopted by almost all motor carriers in Canada to shield their businesses against volatile fuel pricing, may be in doubt, editorial director Lou Smyrlis told industry stakeholders attending today’s “Let’s Talk about Volatile Fuel Prices” series of cross-country seminars.

“Today’s fuel surcharges are having downstream effects on your customers. The unpredictable and volatile nature of fuel pricing and the resulting surcharges will increasingly become the cause of increasing friction in the carrier-shipper relationship,” Smyrlis said. “Many believe we may be headed toward a situation where fuel surcharges as currently designed will have to evolve. The question is how? Carriers need to ask themselves if the strategies they have successfully employed to combat fuel price volatility over the past five years can continue to be successful over the next five years.”

The “Let’s Talk about Volatile Fuel Prices” series of cross-country seminars, co-sponsored by Transportation Media Research and Markel, is designed to examine in detail the reasons behind fuel price volatility and future projections for fuel pricing and the options available to carriers in dealing effectively with the situation.

Fuel surcharges were implemented as a temporary measure to eliminate carrier exposure to fuel price volatility. The current wave of surcharges actually dates back to the Spring of 1999. However, fuel price volatility has proved to be anything but temporary and so fuel surcharges have become a fixture of carrier operations.

“The problem with fuel surcharges is that although they have shielded motor carriers against fuel price fluctuations, they do not eliminate fuel price volatility they simply pass it on to shippers.Continuing volatility will likely cause shippers to demand more cost certainty and stability. And in doing so large shippers may place pressure on carriers to price their fuel and other surcharges more competitively,” Smyrlis said.

He warned that motor carriers must guard against re-exposing themselves to fuel price volatility, praising the growing industry sophistication that has led many carriers to demand fair compensation for their services and coverage for costs beyond their control. He reminded the audience that the last time motor carriers left themselves exposed to sharply rising fuel prices, during the late 90s, it proved to be a major reason behind the demise of about a quarter of the small carrier base in Canada.

However, Smyrlis also stressed that carriers must be sympathetic to the needs of shippers, pointing out that although shippers can handle gradual upward increases in their transportation costs, they have difficulties absorbing cost volatility.

“How did trucking become the dominant transportation mode over the past few decades? It wasn’t because of technology; other modes are more technology adept. It wasn’t because of its human resources; it has been plagued with a driver shortage for as long as I can remember. It wasn’t because it offered the lowest price. It was by outdoing every other mode when it came to understanding and caring about its customers,” Smyrlis said, adding that even though motor carriers may find themselves in the driver’s seat right now during contract negotiations, they must “continue to be concerned about the financial viability of their customers.”

For more information about the four-hour “Let’s Talk about Volatile Fuel Prices” seminars and when they will be in your area, contact 1-888-MARKEL-1 or e-mail letstalk@markel.ca. You can also visit www.markel.ca/letstalk.

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