Raising Fuel costRaising Fuel cost

We will discuss…..We will discuss…..

Problem size and implicationsProblem size and implications What carriers can and are doingWhat carriers can and are doing Fuel optimizer – exerciseFuel optimizer – exercise Fuel contract – exerciseFuel contract – exercise Fuel surcharge schedule – exerciseFuel surcharge schedule – exercise

Recent ObservationRecent ObservationFuel Price HistoryFuel Price HistoryWhy so high?Why so high?Will this trend continue?Will this trend continue?

Problem SizeProblem SizeHow many gallons burned?How many gallons burned?36.4 billion gallons per year36.4 billion gallons per yearA penny increase means over $300 A penny increase means over $300

million loss per yearmillion loss per yearExample: Schneider NationalExample: Schneider National220 million gallons per year220 million gallons per yearEvery penny increase in fuel cost Every penny increase in fuel cost

means a loss of 2.2 million.means a loss of 2.2 million.

Problem (cont.)Problem (cont.)Fuel is used to be the second Fuel is used to be the second

largest cost for motor carriers.largest cost for motor carriers.It is now #1 cost (given that fuel It is now #1 cost (given that fuel

price is higher than $2.75)price is higher than $2.75)

Thing carriers can and are doingThing carriers can and are doingFuel surcharge (60-70% recovery)Fuel surcharge (60-70% recovery)Engine idling timeEngine idling timeRoad speedRoad speedOOR milesOOR milesBulk purchasingBulk purchasingAdjustment of equipmentAdjustment of equipmentNetwork Truck stopsNetwork Truck stopsHedgingHedgingFuel leakage preventionFuel leakage prevention

Thing carriers can and are doing Thing carriers can and are doing (Cont.)(Cont.)

Larger TankLarger TankPrevent theftPrevent theftPrevent out-of-fuelPrevent out-of-fuel

Implications for ShippersImplications for Shippers(for class discussion)(for class discussion)

Business volumeBusiness volume Shipper-to-shipper collaborationShipper-to-shipper collaboration Base rate reduction through efficient Base rate reduction through efficient

routing, refueling, and schedulingrouting, refueling, and scheduling Consolidation, full truckloadConsolidation, full truckload 3PLs for consolidation, routing, S-S 3PLs for consolidation, routing, S-S

collaborationcollaboration Intermodal transportationIntermodal transportation Facility location implicationsFacility location implications Global sourcing implicationsGlobal sourcing implications

Fuel OptimizerFuel OptimizerMathematical model (software) that is Mathematical model (software) that is

increasingly recognized as a useful fuel increasingly recognized as a useful fuel management tool by TL carriers.management tool by TL carriers.

Sequential problem solvingSequential problem solvingUses OPIS data (daily update)Uses OPIS data (daily update)Calculates optimal fueling location and Calculates optimal fueling location and

quantity for each loadquantity for each loadProMiles, Fuel&Route, Expert Fuel, Fuel ProMiles, Fuel&Route, Expert Fuel, Fuel

Advice.Advice.Vendors claim that saving is 4 to 11 cents per Vendors claim that saving is 4 to 11 cents per

gallon of fuel or about $1,200 per year per gallon of fuel or about $1,200 per year per trucktruck

Factors consideredFactors consideredFuel at originFuel at originFuel at destinationFuel at destinationTank capacityTank capacityMin fuel to be maintainedMin fuel to be maintainedMin fuel to buyMin fuel to buyMPGMPGTruck stop OORTruck stop OORContract (network truck stops)Contract (network truck stops)State Tax implicationsState Tax implications

Some notes on Fuel OptimizerSome notes on Fuel OptimizerStill not widely usedStill not widely usedProblems: (1) driver compliance, (2) Problems: (1) driver compliance, (2)

driver turnover ratesdriver turnover ratesActual saving is way lower than what is Actual saving is way lower than what is

claimed by vendorsclaimed by vendorsAnnual maintenance fee (20%)Annual maintenance fee (20%)Many carriers are reluctant to adoptMany carriers are reluctant to adoptAn on-going study by Iowa StateAn on-going study by Iowa State