During periods like this of high fuel cost volatility, with fuel surcharges to help offset sudden price increases, the Cost Information System can be used to analyze the impact of changing prices on freight. Fuel surcharges, like rates, are based on averages. The mix of a particular customer's freight can result in the surcharge producing a windfall, or can be substantially inadequate, compared to the excess fuel expenses for that freight, and it is important that you know this when making decisions on surcharges and customer pricing.
It is critical, when analyzing any shipments, that the fuel surcharge rate used for revenue and the fuel price level used for costing be in sync.
To analyze freight at the current fuel price level (or other price-level scenarios), the fuel cost component of both the Linehaul and Pickup and Delivery activities can be revised using CIS Profile Maintenance's proforma adjustment capability. Re-Calculate and Re-Load Unit Costs after entering a fuel price adjustment ratio under the "Unit Cost Development" item "Proforma Adjustments." The ratio should be the current price divided by the average price for the unit cost period. If you utilize substantial amounts of purchased transportation, be sure that the charges under the Profile "Linehaul" item "Purchased Linehaul" be modified to reflect the surcharges that vendors are or will be charging your company.
TCG Technical Paper #4, "Prospective Costs and Performance," provides more information and worksheets for this. Revised unit costs can be stored in separate models, also established via the Maintenance software, reflecting one or more fuel cost levels for multiple scenarios.
If utilizing the CIS feature for regional linehaul fuel cost differentials, it may be appropriate to also update the regional prices in that table, prior to loading the revised unit costs. This should be done if a shift is detected in the relative differences in fuel prices in the areas defined for the fuel differentials. For example, southern fuel prices may have escalated, relative to all other regions, due to the damage from the recent hurricane, and thus the relationship between those prices and other regions would now be different.
With unit costs reflecting the prospective fuel cost level, the fuel surcharge used must also reflect that same level. For historic freight in Traffic/CIS, extract shipments with the Report Writer using the revenue option "Tariff Revenue Breakdown," or "No Revenue" if re-rating. Be sure that the "Linehaul as Calculated" setting is No or Actual Load and Cube, as you do want linehaul costs re-calculated with the new fuel costs.
For any other source file of shipment data (manual entry, Porter, etc.) use Tariff revenue, rather than net revenue, if not auto-rating, so that the surcharge can be easily manipulated for various scenarios.
Then, edit the shipment file via the Template, and enter the appropriate fuel surcharge percent for the freight in the Rate Data window, pressing enter to pass the entry through the file. If the file contains Truckload shipments or any freight moving at a different surcharge amount, use the Template's Replace Data (magic wand) button to set the weight or other parameters and apply the different amount to those shipments.
The cost results will then reflect fuel costs based on the that customer's freight, which is a function of the shipment characteristics and service you provide, for proper analysis of the adequacy of their rates and fuel surcharge.
Updated November, 2005