Raising Fuel cost

We will discuss…..  Problem size and implications  What carriers can and are doing  Fuel optimizer – exercise  Fuel contract – exercise  Fuel surcharge schedule – exercise

Recent Observation  Fuel Price History  Why so high?  Will this trend continue?

Problem Size  How many gallons burned?  36.4 billion gallons per year  A penny increase means over $300 million loss per year  Example: Schneider National  220 million gallons per year  Every penny increase in fuel cost means a loss of 2.2 million.

Problem (cont.)  Fuel is used to be the second largest cost for motor carriers.  It is now #1 cost (given that fuel price is higher than $2.75)

 Thing carriers can and are doing  Fuel surcharge (60-70% recovery)  Engine idling time  Road speed  OOR miles  Bulk purchasing  Adjustment of equipment  Network Truck stops  Hedging  Fuel leakage prevention

 Thing carriers can and are doing (Cont.)  Larger Tank  Prevent theft  Prevent out-of-fuel

Implications for Shippers (for class discussion)  Business volume  Shipper-to-shipper collaboration  Base rate reduction through efficient routing, refueling, and scheduling  Consolidation, full truckload  3PLs for consolidation, routing, S-S collaboration  Intermodal transportation  Facility location implications  Global sourcing implications

 Fuel Optimizer  Mathematical model (software) that is increasingly recognized as a useful fuel management tool by TL carriers.  Sequential problem solving  Uses OPIS data (daily update)  Calculates optimal fueling location and quantity for each load  ProMiles, Fuel&Route, Expert Fuel, Fuel Advice.  Vendors claim that saving is 4 to 11 cents per gallon of fuel or about $1,200 per year per truck

 Factors considered  Fuel at origin  Fuel at destination  Tank capacity  Min fuel to be maintained  Min fuel to buy  MPG  Truck stop OOR  Contract (network truck stops)  State Tax implications

 Some notes on Fuel Optimizer  Still not widely used  Problems: (1) driver compliance, (2) driver turnover rates  Actual saving is way lower than what is claimed by vendors  Annual maintenance fee (20%)  Many carriers are reluctant to adopt  An on-going study by Iowa State