Freight Rates and Fuel Surcharges

In every industry, there is a complex network of activities that makes an impact on an entire chain of events. From the availability of oil in the form of fuel to changes in DOT regulations, freight rates and fuel surcharges are no exception. As these rates fluctuate, so do the logistics of delivering your goods quickly and on time.

 DOT Regulations

New regulations from the Department of Transportation (DOT) arguably have the biggest impact on freight rates. As we work toward a safer and more eco-friendly trucking industry, new legislature and regulations are passed to reinforce these initiatives. Some of these have repercussions that redefine the face of the trucking industry, while others have little impact.

 Driver Hours of Service Regulations

Driver hours of service regulations have been an ever-moving target in the transportation industry. As each change is introduced, it creates waves of positive or negative impacts on driver and asset utilization for logistics companies. Every change is made to improve driver and general transportation safety, but sometimes these regulations create driver shortages and new issues for the logistics crew. To counteract this, companies have to hire more drivers, implement electronic logs in their rigs and purchase new trucks.

 Electronic Log Mandate

One regulation that had a huge impact on trucking was the recent electronic log mandate, which automatically tracks hours of service. The old method of handwriting driving data on paper required auditors to verify logs that were faxed to them by hand-matching GPS coordinates and receipts. An electronic system can verify these logs in real time without the need for individualized verification and increases the accountability of the drivers, but it’s costly to invest in this equipment up-front for tractor owners. With this change, there is a much tighter adherence to the driver’s rules and regulations that have been rolled out by the DOT to make the industry safer.

 The Next Generation

Driver availability has been a lingering topic for the trucking industry. The biggest impact of this issue can be accredited to an aging driver workforce and lack of a new generation of truck drivers. New driver regulations have been implemented to improve safety and the quality of driver, but this impacts driver availability as it is now much more difficult to become a truck driver. Some regulations include earning a CDL, attending driving school, and maintaining a clean driving record. Many companies are thinking outside the box to resolve this issue, but it does take time and money to resolve.

 Truck Emissions Standards

New emissions regulations need to be implemented as the trucking industry continues to push toward a cleaner and greener environment. These regulations specifically impact engine performance and reliability to create fewer greenhouse gases in the environment. As with any new technology, there are positive and negative short and long-term impacts on performance and costs, including the price to upgrade equipment and the ability for better gas mileage.

 Natural Disasters and Economic Health

Hurricanes, floods, fires, tornados and snow are just a few examples of natural disasters that impact the transportation industry. The effects can be felt on a regional level and all affect the transportation industry on a regional basis. Normally these have a short-term impact, but tend to have a large effect when it does occur. Storms and earthquakes can create hazardous conditions for drivers and slow movement down enough to affect delivery times. They can also create shortages of goods, which indirectly affects logistic by increasing transportation costs (for example, diesel).

Economic health is often times negatively impacted by regional disasters. It’s best when the US economy is healthy and growing, as this contributes to more freight movement, but the overall supply and demand schedule also impacts freight availability and rates by restricting resources.
When supply of a product goes up, it may be necessary to commission new trucks to move that freight. Manufacturing can take a lot of time, and can’t always keep up with the new demand for them at certain times.

 Freight Seasonality

Throughout the year, there are freight “seasons.” Harvest season, forest products, end of month, end of quarter, holidays and more. During these times, truck availability fluctuates, which ultimately impacts freight rates. Think about the holiday season for example. Manufacturers are ramping up to produce product in time. The demand for materials increases, which in turn increases the demand for transportation. A wise man once told me, “It’s melon season, guy, and it’s gonna be tough to find a truck!”

 Fuel Surcharges

In order to better manage fluctuating fuel prices, the trucking industry implemented a fuel surcharge fee. This fee is calculated using the base freight rate and changes cyclically throughout the year. How much fluctuation is typically based on current oil prices in attempt to mirror what fuel prices are doing. The fuel surcharge fee is designed to be a permeating cost that allows the carrier and customer to mutually benefit from varying fuel costs.

 In Conclusion

Logistics and transportation are reliant on several factors, including freight rates and fuel surcharges. Viewing all of these pieces, whether they are directly or indirectly impactful, gives us a clearer picture of what it takes to get your product to you quickly and accurately and highlights the need for an organized, consistent logistics team.