Because customers use different fuel-surcharge formulas, linehaul alone no longer shows which customer pays the better rate; carriers need to compare linehaul plus fuel surcharge.
Consider two customers shipping from Indianapolis to Dallas. Customer A pays $1.56 per linehaul mile plus fuel surcharge. Customer B pays $1.73 plus fuel surcharge.
Which rate is better? It depends on the fuel surcharge attached to each rate.
The Standard Fuel Surcharge Is That There Is No Standard
The long-standing practice of comparing shipper rates by linehaul alone had become misleading.
A carrier might publish a standard fuel surcharge, but few customers actually use it. Shippers may apply their own standard schedule, a Petroleum Administration for Defense District-specific schedule, Breakthrough Fuel, a zero-peg formula, an all-in rate, or another method.
Most, but not all, of these methods use the Department of Energy's national retail diesel average. The result is a market with no single standard fuel surcharge.
How the Fuel Surcharge Began
Fuel surcharges became common during the early 1990s as a consequence of the Gulf War.
Fuel prices had remained relatively consistent after the 1973 oil embargo. When uncertainty over supply caused prices to spike, carriers and shippers needed a way to manage unpredictable fuel cost.
The formula they developed commonly used a Department of Energy base price of $1.15 or $1.20 per gallon. The carrier received one cent per mile for every five-cent increase above the base, reflecting trucks that achieved about five miles per gallon.
The system was bilateral. When the Department of Energy price fell below the base, carriers sometimes applied a negative fuel surcharge.
What began as a temporary answer became a permanent part of truckload pricing.
Rate Components Can Be Moved for Optics
In the later pricing environment, carriers and shippers often negotiated an all-in rate and then assigned dollars to the linehaul or fuel-surcharge buckets according to the presentation most likely to complete the deal.
That allocation could make a rate appear more favorable to shipper stakeholders without changing the total amount paid.
As a result, linehaul by itself stopped being a dependable basis for comparing customers.
Compare Apples to Apples With LH+F
Consistent rate comparison matters when a carrier:
- Prepares or evaluates bids
- Compares its rates with market indexes
- Tracks pricing metrics and trends
- Analyzes particular shippers or lanes
KSM Transport Advisors therefore created the LH+F metric, combining linehaul and fuel surcharge, and incorporated it into its work products, methodologies, and processes.
The recommended paradigm shift was to treat LH+F, rather than linehaul alone, as the comparable rate.