Passing through diesel prices

Passing through diesel prices

Diversified customer base, variable fuel surcharges keeps carrier profitable

Diesel prices may be volatile right now, but a steadfast resolve to purchase fuel from select vendors, coupled with a diversified customer base has been key for truckload carrier Contract Freighters Inc. to avoid gaping holes in its bottom line.

CFI president Herb Schmidt told Fleet Owner that the carrier has stuck to their guns on working deals with a few local vendors and passing on the costs of fuel increases via surcharges.

“Our strategy has always been to leverage our buying power and deal with as few vendors as possible,” said Schmidt. “In terms of their geographic purchasing location, if we could deal with one vendor we would, because as we minimize the number of authorized fuel stops, we maximize our buying power.

“We have made a conscience decision not to hedge,” Schmidt explained. “I regard fuel as a cost we can’t control, and I’m not willing to play a blackjack hand. So we deal in a pass-through way that makes costs predictable. Through a moving surcharge you eliminate the risk of increased fuel prices.”

CFI checks fuel prices listed by the Dept. of Energy weekly and adjusts its surcharge rate per mile a penny for every 4-cent change in diesel prices. In terms of the ‘predictability’ aspect that variable surcharges provide, this technique has minimized losses in profitability, Schmidt said.

But keeping a long list of customers has also been critical for CFI to react to shippers’ resistance to surcharge hikes.

“You only get squeezed as much as allow yourself to be,” said Schmidt. “We have a diverse customer base, and they keep us whole. If customers don’t want to cover our increased costs, we usually have plenty of other customers to turn to-- and in most cases they’ve come back.”

Because of this diesel prices are no major threat to CFI’s profitability, Schmidt said.

“If we weren’t determined to be reimbursed for the cost of fuel and we did business with companies that mandate costs, fuel prices it would concern me greatly,” he explained. “I know that some carriers have too many of their eggs in the wrong basket in a volatile environment— you have to keep customer base diverse and take a hard-lined stance on passing on costs that are not under your control. To me, fuel is a pass-through item.”

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