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Raising Fuel cost

Raising Fuel cost. We will discuss…. Problem size and implications What carriers can and are doing Fuel optimizer – exercise Fuel contract – exercise Fuel surcharge schedule – exercise. Recent Observation Fuel Price History Why so high? Will this trend continue?. Problem Size

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Raising Fuel cost

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  1. Raising Fuel cost

  2. We will discuss….. • Problem size and implications • What carriers can and are doing • Fuel optimizer – exercise • Fuel contract – exercise • Fuel surcharge schedule – exercise

  3. Recent Observation • Fuel Price History • Why so high? • Will this trend continue?

  4. Problem Size • How many gallons burned? • 36.4 billion gallons per year • A penny increase means over $300 million loss per year • Example: Schneider National • 220 million gallons per year • Every penny increase in fuel cost means a loss of 2.2 million.

  5. Problem (cont.) • Fuel is used to be the second largest cost for motor carriers. • It is now #1 cost (given that fuel price is higher than $2.75)

  6. Thing carriers can and are doing • Fuel surcharge (60-70% recovery) • Engine idling time • Road speed • OOR miles • Bulk purchasing • Adjustment of equipment • Network Truck stops • Hedging • Fuel leakage prevention

  7. Thing carriers can and are doing (Cont.) • Larger Tank • Prevent theft • Prevent out-of-fuel

  8. Implications for Shippers(for class discussion) • Business volume • Shipper-to-shipper collaboration • Base rate reduction through efficient routing, refueling, and scheduling • Consolidation, full truckload • 3PLs for consolidation, routing, S-S collaboration • Intermodal transportation • Facility location implications • Global sourcing implications

  9. Fuel Optimizer • Mathematical model (software) that is increasingly recognized as a useful fuel management tool by TL carriers. • Sequential problem solving • Uses OPIS data (daily update) • Calculates optimal fueling location and quantity for each load • ProMiles, Fuel&Route, Expert Fuel, Fuel Advice. • Vendors claim that saving is 4 to 11 cents per gallon of fuel or about $1,200 per year per truck

  10. Factors considered • Fuel at origin • Fuel at destination • Tank capacity • Min fuel to be maintained • Min fuel to buy • MPG • Truck stop OOR • Contract (network truck stops) • State Tax implications

  11. Some notes on Fuel Optimizer • Still not widely used • Problems: (1) driver compliance, (2) driver turnover rates • Actual saving is way lower than what is claimed by vendors • Annual maintenance fee (20%) • Many carriers are reluctant to adopt • An on-going study by Iowa State

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