Five Tips to Minimize the Cost Impact of Fuel Surcharges with Multi-Carrier Shipping Software

Reduce Shipping Costs Related to Fuel Surcharges

A year ago, fuel prices were less than $2.50 a gallon. Today, most areas are hovering around $5.00, with some regions paying north of $7.00. As fuel prices have skyrocketed in recent months, carriers are arbitraging the difference between the wholesale and retail (i.e., nationwide benchmark) prices to earn enormous profits, while shippers feel the pain.

In this blog, we’ll discuss ways to minimize unnecessary shipping costs related to fuel surcharges by analyzing your shipping operations and leveraging your multi-carrier shipping solution.

What Is a Fuel Surcharge?

A fuel surcharge (FSC) is a type of accessorial charge or fee assessed by transport companies, typically after all other freight charges have been calculated, to account for fluctuating fuel costs. Carriers base their weekly, index-based FSCs on the National US Average On-Highway Diesel Fuel Price determined by the US Energy Information Administration (EIA). The prices shown in the above chart reflect retail fuel prices, while carriers pay a lower wholesale price for their fuel, mark it up using their own calculations, and spread it across a wide range of services.

Mark Solomon of FreightWaves noted, “The silent killer for shippers is that virtually every delivery surcharge — and there are dozens of them — has a fuel surcharge component attached to it. This ‘death by a thousand cuts’ strategy, combined with oil prices that have climbed rapidly in recent months, has made fuel surcharges a budget buster for shippers.”

FSCs have taken up a more significant portion of shippers’ freight budgets in recent years. According to Karl Wheeler, Senior Consultant for Professional Services at Shipware, one of his customers, a sizable FedEx shipper, said in 2020 that roughly one-third of its surcharge expense was attributed to fuel. In 2021, that number soared to 56%.¹

Identifying Ways to Minimize Fuel Surcharges

While fuel surcharges are unavoidable, you can prevent unexpected charges from eroding profitability by examining the following areas.

Audit Your Shipment Packaging Efficiency

Most shippers fail to realize that their shipment packaging is inefficient if contents bounce around when the shipping box is shaken. Do your shipping processes ensure that all orders are packed in the smallest possible packaging? If not, your shipping costs will be calculated at higher shipping rates than necessary. If your company ships orders in various box sizes, consider implementing cartonization software to analyze order size and automatically choose the smallest possible box to pack the order. This will prevent larger-than-necessary packages, which require excess void fill and higher dimensional freight rates charged by ground carriers.

Another option is to consider alternative packaging, such as polybags for softer/lighter items, depending on the destination. Conducting a packaging audit on past shipments will offer actual data upon which to base your improvements. It’s also a good idea to work alongside your warehouse team to identify ways to improve the packing process. You can also gain valuable insights by consulting your packaging supplier or engaging with a packaging expert to review your strategy.

Identify Shipment Consolidation Opportunities

Consolidation is the Holy Grail of shipping. Do you really need to ship everything to your clients every day? Can you ship urgent items on-demand but ship re-orders as one large shipment once a week? You can significantly reduce shipping costs by consolidating multiple smaller orders into a single shipment whenever possible.

For example, it is not unusual for shippers with large corporate customers to receive multiple orders from different departments at the same location, resulting in multiple individual shipments that could be consolidated into one larger shipment.

You can also reduce shipping costs by working with your customers to identify and separate high-priority orders from non-urgent “resupply” orders that can be delivered at a lower price while still meeting the requested delivery date. Multi-carrier shipping software systems such as InfoShip®/Vx can be configured to automatically detect shipments eligible for consolidation and a lower freight rate.

Identify Lower-Cost Delivery Options

Many shippers have selected a primary carrier to handle their parcel shipments, signing contracts that guarantee freight discounts if the shipper meets the required volumes.

However, routing ALL shipments, including very light packages (ex. <5 lbs.), through one carrier, may actually result in increased costs. While to some degree, discounts are based on total volume, carriers use average weight, cost, and profitability when providing discounts; low-weight packages are generally low revenue sources for the carriers and can hurt your discount structure.

Consider alternatives such as diverting lightweight, residential packages to other carriers such as the USPS, which does not assess fuel surcharges, residential fees, or dimensional freight rates on packages under one (1) cubic foot. The USPS also provides free packaging, which further reduces your costs. USPS international shipping rates can also be more cost-effective than parcel carriers’ rates.

Alternatively, you may be able to lower your shipping costs by adding couriers or regional carriers to the mix and rate shopping across multiple delivery options. With the InfoShip/Vx multi-carrier shipping system, multiple carriers can be loaded onto a single platform and automatically compare carrier rates and services for the lowest-cost shipping. You can also create customer profiles to automatically ship orders according to their shipping rules.

Visit the InfoShip/Vx Carrier Library

Revise Free Shipping Program Thresholds

Many of today’s “FREE” or flat-rate shipping policies were created well before the current gas price craze and have remained in place ever since. But now, the national average is around five bucks a gallon, equating to profit-demolishing FSCs.

If you offer this type of promotion on orders over a certain amount (ex. $100), this would be a great time to consider raising your required minimum (ex. $250) for free/flat-rate delivery. With current inflation and fuel surcharge increases, your clients should most likely understand the reasons for making changes to the program.

Summary

It’s more important than ever to actively monitor these areas of your shipping operations and leverage technology to optimize shipping processes and decisions. We are always happy to chat if you have questions on any of these topics.

Considering a New Multi-Carrier Shipping Platform?

If you’re considering a new multi-carrier shipping system, keep in mind that CLS InfoShip/Vx installations are guaranteed to deliver the agreed ROI as promised, and all projects are fixed-price.

Learn More

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Rick Williams, President and CEO of Creative Logistics Solutions (CLS), is a shipping systems technology expert with advanced experience in shipping and supply chain operations. CLS helps companies improve warehouse productivity by combining streamlined workflows with InfoShip™/Vx, its multi-carrier shipping software platform, integrated pack/ship stations, data collection, and more.

[1] Freightwaves – Parcel Shippers to Feel More Fuel Surcharge Pain

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