Fuel Surcharges have become an increasingly necessary item within freight rating, especially at times of high fuel prices. They are a tool you can use to help offset the unpredictability of fuel costs, and share the burden of rising fuel prices with your customers. They also provide greater transparency to your customers, helping them see how fuel costs play in to the overall price of moving freight.
The Basics – Revenue Items and ‘FSC Chargeable’ Revenue
In Tailwind, there are a number of ways to handle Fuel Surcharges, but all of them involve setting up your Revenue Items appropriately in the Configuration menu. These options are available under Configuration -> Financial -> Revenue Items.
Any given Revenue line can be set as ‘FSC Chargeable’, which means that it will be included in any calculations that are based on ‘FSCable Revenue’ or other derived values. This is helpful when you want to set up a Fuel Surcharge that is based on a percentage of your Revenue on an Order – but want to exclude accessorial charges from the calculation.
For example, the ‘Freight Charge’ Revenue Item that exists by default in all Tailwind systems is marked as ‘FSC Chargeable’. As a result, any Freight Charge revenue will be included when using the default ‘Fuel Surcharge’ Revenue Item, which is based off FSCable Revenue. So if you had an Order with a $1000 Freight Charge, a $75 Tarping Fee, and a Fuel Surcharge with the unit rate set to 0.15, the surcharge would automatically calculate to $150.
You can set a Revenue Item to default to FSC Chargeable when you create it, but you can also override this default on any particular line item if necessary.
‘FSC Type’ Revenue Items
Revenue Items can also be marked as ‘FSC Type’ items. This toggle controls whether or not the items in question will be included when generating any Reports that deal with Fuel Surcharges. Even if you do not currently use these reports, it is worth flagging any new Revenue Items appropriately, as you may find the reporting useful further down the line.
Creating Your Own Fuel Surcharge Items
The default ‘Fuel Surcharge’ Revenue Item provides a basic template for creating your own Fuel Surcharge items based on a percentage of Revenue. If you want to adjust the percentage, set the Unit to ‘Custom’ and enter the percentage in decimal form under ‘Unit Default Type Value’. So if you want to charge 8% of FSCable Revenue, you would enter ‘0.08’.
However, you could also create a Fuel Surcharge item that charges based on the distance traveled, rather than the total Revenue. To do so, you would select ‘Actual Miles’ as the Units Default Type, then set your rate per mile as a ‘Custom’ Unit Rate Default Type, and enter the value you want to charge per mile as the Unit Default Type Value. For example, if you are charging 15 cents per mile, you would enter ‘0.15’.
‘Current FSC Rates’ and Fuel Surcharge Schedules
Along with the basic Revenue Items, Tailwind offers some more advanced tools you can use to manage your Fuel Surcharge rates: Fuel Surcharge Schedules, and Fuel Surcharge Matrices. Both these tools rely on using two settings you may have noticed while setting up your Revenue Items earlier: the ‘Current FSC Rate’ setting under Units, and the ‘Current FSC Rate Per Mile’ under Unit Rates.
When you set a Revenue Item to use one of these settings, it will pull the value from a Fuel Surcharge Schedule, which may in turn calculate it based on a Fuel Surcharge Matrix. By configuring one or both of these items, you can set up your Fuel Surcharge rates to change over time, or even in accordance with the average price of gas.
What is a Fuel Surcharge Schedule?
A Fuel Surcharge Schedule is simply a schedule of rates that you can set up to use for all your Fuel Surcharges: each line consists of a date, and the FSC rates you want to charge as of that date. Rates will remain the same until the next date on the schedule – if you reach the last date on the schedule, those rates will remain in place forever, or at least until you add a new line to the schedule. Each line includes an entry for both a generic, percentage-based ‘Rate’ and a separate ‘Rate Per Mile’, in case you want to use different methods for different types of trips.
You can set up a default Schedule, but you can also set up custom schedules for individual Customers, to reflect a specific arrangement regarding fuel surcharges. This can allow you to charge one Customer a flat, pre-negotiated rate, while your other Customers are charged a variable rate based on the Default schedule/matrix.
What is a Fuel Surcharge Matrix?
A Fuel Surcharge Matrix is a table that uses the current average price of fuel to calculate which preset FSC Rate you want to charge. By setting different rates for different price thresholds, you can ensure that your automatically-calculated Fuel Surcharges are keeping up with the fluctuations of fuel prices. Note that an FSC Matrix is not a stand-alone tool: it is used to update an existing FSC Schedule.
Each line on the matrix includes a price threshold, and then two corresponding rates (as above, the flat percentage Rate and a Rate Per Mile.) When you click on the ‘Fetch Latest FSC Rates From EIA’ button at the bottom of the Fuel Schedule, the system will use the existing matrix to calculate an appropriate rate and place a corresponding line (or series of lines) in your FSC Schedule.
For example, if you want to set up a Matrix that starts with a 10% rate for $2/gallon gas, and adds an extra 2.5% for every $0.50 increase in the price. In this case your Matrix would look something like this:
This means that if you fetch the EIA rates and the current average price per gallon is $2.82, the rate will be set at 0.125 (12.5%). If the price goes up to $3.08, the rate will be set to 0.15 (15%). In either case, a new rate will automatically be added to the schedule, using the dates provided by the EIA data.
Of course, this is just an example. You could start with different rates, or choose to use smaller increments on your matrix – whatever makes sense for your business. The important thing to understand is that the ‘National Average Upper’ field sets the upper bound for that rate: any fuel price below that number (but above the next-lowest entry) will be set to that rate. Crucially, this means that if the fuel price climbs above your highest National Average Upper entry, no rate will be set at all – so if you are setting up a matrix, you may want to include at least one entry significantly higher than you expect fuel prices to travel, just in case.
Updating Your Schedules Using the FSC Matrix
Once you have a matrix in place, you will still have to periodically open up your schedules and use the ‘Fetch Latest Rates…’ button to update the schedules with the latest EIA data. Doing so will backfill in any missing dates – so if the EIA has updated their data twice since you last fetched the rates, two new lines will be added to your schedule, one for each date. In the case where you have created individual schedules for specific Customers, you will have to repeat this process for each Schedule.
While setting up FSC-related Revenue Items, you may want to read about Revenue Items in general.