A recent Commercial Carrier Journal survey of trucking executives found that only 5 percent did not receive fuel surcharges from any of their shippers. The bad news is that a majority – 51 percent – did not get surcharges from all of their shippers. When you consider that the national average diesel price hasn’t been below $1.40 since September, that’s a hard pill to swallow.
Certainly there are times when you won’t get a surcharge. Brokers likely won’t pay them on backhauls; they know that you would burn the fuel deadheading anyway. And some carriers simply adjust their rates periodically to account for higher fuel prices. Still, many carriers clearly are failing to recover the cost of fuel from all of their customers.
If your company fits this description, it’s time to look at the bigger picture. If you aren’t getting surcharges or a higher rate based on the cost of fuel, it may be because you are reluctant to lose the business. But what’s that business worth, really?
The trucking culture is one of accommodation. That’s understandable for an industry built largely on serving just-in-time manufacturers and perishable goods suppliers. But just because you serve your customer’s operational needs doesn’t mean you must agree to his financial terms. Unfortunately, many trucking company executives are resigned to having no leverage.
That makes no sense. Thousands of carriers have exited the business in the past few years. With the insurance crisis still in force, this winter’s surge in diesel prices surely has taken down hundreds more. Capacity is on the decline. Costs are not falling. And 42 percent of the trucking executives responding to our survey reported that freight volume had increased in the past year.
Given this scenario, a college microeconomics professor would say that pricing will rise. But in fact, 51 percent of trucking companies said that freight rates had stayed the same in the past six months, and another 21 percent said rates had fallen.
The bottom line? Many carriers are afraid to confront customers. In January, we quoted American Central Transport President Tom Kretsinger, Sr. on the outlook for 2003. “Undercapacity will be very beneficial to the survivors,” Kretsinger said. “I hope the industry does not lose this opportunity.”
What Kretsinger implies is that higher freight rates are not a given just because capacity is falling. A shipper won’t pay you more if you don’t ask for more. And many carriers just don’t ask.
The real reason some carriers don’t even seek higher rates may be that they can’t make a strong argument for needing them. If you propose an increase of, say, 5 percent, the shipper will ask why. Suppose all you can say is, “Well, my costs are going up.” You can predict the response. “That’s not my problem.”
But suppose you could show that the receivers for that shipper’s goods put your trucks in a difficult area for backhauls. Or perhaps you can demonstrate that waiting times for loading at that shipper’s locations are costing you a load per week per truck. Those are strong cases for higher rates. You still might not get the rate you want, but you have a fighting chance.
To do this, however, you must understand what drives your costs. One way to tackle the problem is to use cost accounting, which allows you to consider costs on a load-by-load or lane-by-lane basis. The Truckload Carriers Association (www.truckload.org) has presented several seminars on cost accounting and plans more in the future. Information systems that capture and report costs help as well.
But cost-accounting principles, software and the like are simply tools. They won’t get you better rates unless you use them. And if you can’t use them to get more money from your customers, maybe you should get better customers.