Fuel represents the second largest expense for any trucking operation (behind driver compensation). In fact, fuel can eat up 25% or more of the revenue generated by a carrier, or over 43 cents per mile driven. Driver wages and benefits are market driven, and are heavily influenced by geography. Further, there is a strong correlation between low relative driver compensation, poor safety ratings and accident history. As a result, when carriers are looking for opportunities for margin improvement, many skip driver compensation and jump right to fuel.
Fuel optimization is the most complex problem (or opportunity) that a carrier can solve for. There are many different variables that need to be taken into account. These include, first and foremost, driver behavior, followed by equipment specifications, route planning and effective fuel purchasing practices. The easiest starting point for any fleet looking to reduce its fuel spend is to negotiate the best possible price for fuel purchasing. Fuel providers reward their customers based on volume. The more fuel you purchase from one provider, the higher the likelihood of an ‘optimal price.’ As such, it is in a carrier’s best interest to attempt to direct its driving associates to fuel within one fuel provider network, as much as possible (there are notable exceptions to this general rule).
To improve on any objective, you must first quantify the problem and associated opportunity. A great starting point for any carrier is to calculate its Gross Fuel Expense per Mile. Gross Fuel Expense, as defined by the TCA Profitability Program includes the total amount of fuel purchases, associated fuel-related taxes plus any fuel additives and DEF (diesel exhaust fluid). Some things to keep in mind, depending on interval selected, the calculation of ‘fuel purchased’ may not be exact. For example, you may purchase a full tank of fuel at 11:59 a.m. on December 31st, but actually ‘consume’ this fuel in January. As such, when you look at December on it’s own, that specific purchase may negatively affect your December results, and positively affect your January results. However, when you chain together successive periods (e.g. days, weeks, months), the collection of results forms an accurate rolling average you can use to credibly track your results. This caveat applies to any consumable expense your business realizes.
(Gross Fuel Purchased + Fuel Additives + Diesel Exhaust Fluid + Taxes) / (Odometer Miles End of Period – Odometer Miles Beginning of Period) = Gross Fuel Expense per Mile
Source: SONAR – GFEMIL.FCF, GFEMIL.VCF, GFEMIL.RCF
There are other things to consider to better benchmark your performance. First, if you’re a temperature-controlled carrier, segment your fuel purchases for tractor versus refrigeration units (for trailers). This can be a difficult administrative process for some, but many fuel providers and networks can automate this with RFID control. Second, where you ‘consume’ your fuel has a direct impact on the total taxes you pay via the IFTA regime. As such, this is another consideration for fuel optimization, that may or may not be controllable depending on your customer network and routes. Third, and possibly most timely, some carriers ‘hedge’ future fuel purchases by entering into contracts with financial and fuel distributors to limit their future fuel expense based on current forecasts and estimates. Some use fuel hedging to offset future increases on fuel related to only ‘empty miles’ (because they don’t have fuel surcharges to offset those miles). Other hedge all of their forecasted fuel expense. If there are additional fees or premiums related to fuel hedging, those amounts should be included in your Gross Fuel Expense.
SONAR offers Gross Fuel Expense indexes that track gross fuel expenses for over 200 fleet profiles that make up the TCA benchmarking program. Gross fuel expense indexes track van, flatbed, and reefer truckload carriers. To learn more about Gross Fuel Expense indexes or to sign up for a SONAR demo, click here.