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Opinion: Fuel's Many Costs

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5/6/2011 8:00:00 AM

By Ernie Betancourt

This Opinion piece appears in the May 2 print edition of Transport Topics. Click here to subscribe today.

Traditionally, fuel has been second only to drivers as the highest variable expense truckload companies face. Since the price of fuel probably isn’t going down anytime soon, this a good time for carriers interested in future prosperity to review the costs associated with fuel.

Costs, plural? Yes, because the price of the fuel actually burned in a truck engine is only one cost element. The others include inventory, financing, acquisition, fuel burned while the tractor isn’t generating revenue — and fuel that’s stolen and burned in somebody else’s engine.

Inventory is the fuel stored at a carrier’s terminals and riding in its trucks. Excess fuel cuts into profitability and available liquidity. If $4 a gallon is the base price, your trucks routinely carry 100 extra gallons, and there are 100 trucks in your fleet, they’re hauling $40,000 worth of working capital.

Financing and acquisition costs for fuel purchased over-the-road are even more complex and must be considered together because of the limitations of today’s payment systems. In some cases, the cost of fuel includes 10 cents per gallon of financing and transaction costs, the result of the standard 2.5% fee independent truck stops must pay third-party intermediaries known as “billing companies� for the majority of transactions.

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Also to be factored in are the “unproductive� fuel costs racked up by burning fuel while not generating revenue, a category that includes idling, traveling out-of-route and deadheading.

That brings us to theft: Today’s higher fuel prices provide the incentive for fraud, and a driver who restricts himself to stealing 5% — an average given to me by a large, well-run, national truckload carrier — theft at that level is difficult, if not impossible, to catch. For example, if a truck is driven an average of 120,000 miles per year and gets 6 miles to the gallon, that’s 20,000 gallons per year. Five percent of that is 1,000 gallons, which at $4 a gallon comes to $4,000.

Before discussing solutions, however, let’s review how we got here. In the early 1980s, buying fuel over-the-road involved a plastic identification card sans magnetic stripe. The card carried its purchase policy, which the cashier was responsible for enforcing. The carrier received the statement at the end of the month, and if the policy had been violated, the carrier rejected the invoice.

© 2010, Transport Topics Publishing Group. All rights reserved.



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