Fuel prices top owner-operator challenges
|Rate adjustment or surcharge?
If you’re independent, you have a choice in how you structure your rates to account for fluctuations in fuel prices, possibly diverging from the fuel surcharge. Many question the relevancy of that model, arguing for more dynamic rate structuring that in real time accounts for the cost of fuel.Using tools like Overdrive publisher Randall-Reilly Business Media’s FuelSurchargeIndex.org to get daily lane averages for fuel prices, dynamic rate structuring is much easier today.And for a leased owner-operator not in the position to be negotiating such contracts, it makes no difference whether a $500 load pays the flat $500 or $350 plus a $150 surcharge. “Don’t get hung up on the surcharge,” says owner-operator Jeff Clark. “Maximize your net income.”If you’re leased, fuel surcharges can be a profit center and encourage fuel efficiency. If you’re beating your carrier’s average fuel mileage – the base mpg that is used to calculate the fuel surcharge in contracts – then the more miles you run, the more you profit on fuel.
Consider alternative fuel equipment.
Smart owner-operators should be mindful of developments with natural gas engines. The technology is proven to be efficient in many urban and regional haul applications and is becoming increasingly viable for over-the-road. All truck makers have or are making available natural gas-powered versions of their trucks, and the fueling infrastructure is rapidly expanding, says Mike Bethea, director of Schneider National’s independent contractor fleet.
“We have some units ourselves that we’ve put on,” he says. “They’re running all over, and have performed well with lower emissions.” Natural gas’ diesel-gallon equivalent has been running about a third less costly, making new fleet investments in the equipment to take advantage of it attractive.
Know your costs and boost efficiency.
Cost analysis is crucial to establishing or evaluating the efficacy of any fuel-surcharge or rate-adjustment program. Know what it takes per mile of revenue to meet your fixed costs, and track your fuel mileage, tire-life cycle and maintenance expenditures over time to determine variable cost per mile. “Make sure revenue lines up with all costs, make a good business plan” and update it frequently, Bethea says.
Spec the most appropriate truck for your operation, too, he adds, to get the best fuel mileage.
With the 2010 diesel engine technology making its way into the market, some owner-operators “who’ve managed to get used equipment and operate under those old emissions standards” will increasingly find themselves behind the ball on efficiency, Bethea says. “Six mpg is no longer the standard. Folks are getting 8 mpg with the right kind of load with the new specs. Keep up with the technology and make the right decisions to adapt to change.”
Find a good partner.
Discount fuel programs are available to those running under their own authority via card programs like Wright Express’ OTR Pro Card (OTRProCard.com) and the long-running Trucker’s Advantage card (TruckersAdvantage.com).
Cost-plus fuel buying is available to National Association of Small Trucking Companies (NASTC.com) members as well as owner-operators leased to fleets with such programs. Schneider’s Bethea and Landstar Vice President and Chief Safety and Operations Officer Joe Beacom both report such programs being available to owner-operators. In Landstar’s program, which also includes retail-minus discount pricing, “in 2011, discounts off street price totaled nearly $16 million, all of which was passed through to the Landstar owner-operator,” Beacom says.