Invoices now routinely include fuel surcharges
Invoices now routinely include fuel surcharges
"I don't know of anybody not getting a fuel surcharge," said David Lund of Allen Lund Co. Inc. in Los Angeles, putting a definite emphasis on the word not.
It might be listed as a surcharge or it is in the rate they quote but they are getting it, he added. More and more, our carriers are demanding a fuel surcharge as a separate line item.
And even with the surcharge, Mr. Lund said that trucks are tight and many drivers arent willing to haul product because they are not making any money.
One of my guys told me today that the base rate is $1,000 more than it was a year ago and on top of that is a $700 fuel surcharge, and he still cant find any drivers.
It is no secret that fuel prices are spiraling out of control. Even without Hurricane Katrina damaging many Gulf Coast pumping platforms and refineries, gas and diesel prices were climbing to record highs. The immediate impact of the unprecedented natural disaster was a quick spike in prices. This week, the average fuel price nationally has dropped a few cents, but it is still a crisis situation.
Allen Lund Co. secures transportation for both produce and dry freight loads. Mr. Lund said that more and more companies are looking for long-term contracts to stabilize their rates even in the produce industry. The buyer wants to know their rate and they want to be able to depend on it. The easiest way to do that is have a base rate with a fuel surcharge.
He explained that the surcharge protects the owner-operator who cant make ends meet if he has to haul on a contracted rate without some compensation for rising fuel costs. A cross-country trip can easily use 600 gallons of diesel. If a trucker is paying $1.25 more than he did a year ago, that is an extra $750.
Laurence Stern of Stern Consulting in Westlake Village, CA, who spent many years as the transportation expert for Sunkist Growers Inc. in Sherman Oaks, CA, agreed that the fuel surcharge has become commonplace.
In the old days when fuel prices would go up two to three cents per gallon, the natural fluctuation in market price [of transportation] would compensate for that, Mr. Stern said. But that is no longer the case. With these huge price increases, the carrier has to have a fuel surcharge.
Mr. Lund said that his typical contract has a fuel surcharge table based on the U.S. Department of Energys average fuel price, which is published weekly. The surcharge was 10 [percent] to 15 percent, but lately we have had some contracts with fuel surcharges of 20 percent or more.
Mr. Stern has noted the same thing and said that it is an extraordinary number. When I was at Sunkist, wed get upset at 3-4 percent and really start screaming at 5-6 percent. But both of these experts understand the need for the surcharges and say the industry also seems to be very accepting of them. The owner-operator cannot make a living without them, Mr. Lund said.
Because of the preponderance of contract rates, the Los Angeles truck broker said he could not comment on the current spot-market price on truck transportation. This past summer, prices rose as high as $8,000. Though rates that high were probably few and far between, $7,000 rates were commonplace and probably still exist on some loads currently.
Mr. Stern said that rates that high never existed in September when he was directly involved, and he added that the situation is coming to a head. We have a new paradigm developing [in the produce industry], he said. At some point, something has got to give.
Doing some quick math, Mr. Stern said that a $7,000 rate with a 20 percent surcharge may easily create a situation where the cost of transportation is greater than the cost of the product itself. When I was at Sunkist, the old adage was that when the cost of the transportation approached the cost of the product, youd see a definite cutback in sales.
He said that the increasing costs and decreasing supply of trucks are also changing the way some people do business. While industry custom is for produce to be sold f.o.b. origin, more and more buyers are asking shippers to arrange for freight and even sell the product with a delivered price.
But the cost of transporting the product from shipper to receiver isnt the only area where fuel costs are having an effect. In fact, in many ways that increased cost is the easiest to cover. Mr. Stern said that a fuel surcharge or a skyrocketing spot-market rate tends to cover the cost of transportation. After all, if the fuel price gets too high, the trucker will just park his rig, forcing the buyer to pay the rate he needs to keep operating.
It is much more difficult for a shipper or a local wholesaler to pass on the increased costs he has because of the rising price of fuel.
Paul DeFranco of D. DeFranco & Sons, a repacker in Los Angeles, said that he has to absorb his increased costs. At this point, we dont have a surcharge and we havent raised our prices because of fuel costs.
Mr. DeFranco, who services retailers throughout Southern California, said that the company has tried to cut its costs by improving its efficiency. We never send a truck out half full anymore, he said. We have to combine our shipments. I have a couple of customers in San Bernardino (60 miles away), and I have to make sure that the deliveries are done at the same time.
Mr. DeFranco estimated that fuel costs represent about 20 percent of his overhead and they have doubled in the last year. I am not saying we havent raised our prices in the last year, but it hasnt been specifically because of fuel prices. If it went to $5 a gallon, Im still not sure Id raise the prices because of that.
Getting the product from the field to the shed has also increased, and that is also very difficult to pass on to the buyer. The market price is the market price.
You might be able to get a surcharge when it is short, said Mr. Stern, repeating an age-old produce truism, but if the market is long and you have lettuce or broccoli or oranges, you are not going to get any more for them.
The California Tomato Growers Association is in the business of representing processed tomato growers, most notably in bargaining with processors. While the costs of harvesting that crop are obviously different than what a fresh-market grower would experience, there is some relation between the two.
Ross Siragusa, CTGA president and chief executive officer, said that tomato growers are feeling the effects of these higher prices. He compared costs for the past two years and determined that there has been a huge increase related directly to the price of diesel and he did the study a few months ago when the cost was significantly lower.
The costs per acre for diesel for growing processing tomatoes in the 2003 crop was roughly $72 an acre. That has increased to just over $200 an acre in a matter of two years, so the net impact is a little over $3 a ton, Mr. Siragusa said. So the grower has gone backwards by the tune of $3 and this is using an off-road diesel price of $2.40. In terms of profitability for the growers this year with grower yields and all of these higher costs, they will definitely be in the hole.
Growers are getting about $50 per ton for their tomatoes this year, so the increased fuel cost alone is eating up 6 percent of that revenue. Figure a fuel cost of closer to $3 per gallon, and the result is a loss of an additional 1.5 percent of revenue.
The CTGA CEO said that growers will need to get a significant increase in the tonnage rate next year or they just wont plant tomatoes. He said that many growers are contemplating producing field crops, which have less risk and less up-front costs.
Fresh-market tomatoes and other fresh crops would have different actual costs, but the impact on the bottom line is probably similar.
It might be listed as a surcharge or it is in the rate they quote but they are getting it, he added. More and more, our carriers are demanding a fuel surcharge as a separate line item.
And even with the surcharge, Mr. Lund said that trucks are tight and many drivers arent willing to haul product because they are not making any money.
One of my guys told me today that the base rate is $1,000 more than it was a year ago and on top of that is a $700 fuel surcharge, and he still cant find any drivers.
It is no secret that fuel prices are spiraling out of control. Even without Hurricane Katrina damaging many Gulf Coast pumping platforms and refineries, gas and diesel prices were climbing to record highs. The immediate impact of the unprecedented natural disaster was a quick spike in prices. This week, the average fuel price nationally has dropped a few cents, but it is still a crisis situation.
Allen Lund Co. secures transportation for both produce and dry freight loads. Mr. Lund said that more and more companies are looking for long-term contracts to stabilize their rates even in the produce industry. The buyer wants to know their rate and they want to be able to depend on it. The easiest way to do that is have a base rate with a fuel surcharge.
He explained that the surcharge protects the owner-operator who cant make ends meet if he has to haul on a contracted rate without some compensation for rising fuel costs. A cross-country trip can easily use 600 gallons of diesel. If a trucker is paying $1.25 more than he did a year ago, that is an extra $750.
Laurence Stern of Stern Consulting in Westlake Village, CA, who spent many years as the transportation expert for Sunkist Growers Inc. in Sherman Oaks, CA, agreed that the fuel surcharge has become commonplace.
In the old days when fuel prices would go up two to three cents per gallon, the natural fluctuation in market price [of transportation] would compensate for that, Mr. Stern said. But that is no longer the case. With these huge price increases, the carrier has to have a fuel surcharge.
Mr. Lund said that his typical contract has a fuel surcharge table based on the U.S. Department of Energys average fuel price, which is published weekly. The surcharge was 10 [percent] to 15 percent, but lately we have had some contracts with fuel surcharges of 20 percent or more.
Mr. Stern has noted the same thing and said that it is an extraordinary number. When I was at Sunkist, wed get upset at 3-4 percent and really start screaming at 5-6 percent. But both of these experts understand the need for the surcharges and say the industry also seems to be very accepting of them. The owner-operator cannot make a living without them, Mr. Lund said.
Because of the preponderance of contract rates, the Los Angeles truck broker said he could not comment on the current spot-market price on truck transportation. This past summer, prices rose as high as $8,000. Though rates that high were probably few and far between, $7,000 rates were commonplace and probably still exist on some loads currently.
Mr. Stern said that rates that high never existed in September when he was directly involved, and he added that the situation is coming to a head. We have a new paradigm developing [in the produce industry], he said. At some point, something has got to give.
Doing some quick math, Mr. Stern said that a $7,000 rate with a 20 percent surcharge may easily create a situation where the cost of transportation is greater than the cost of the product itself. When I was at Sunkist, the old adage was that when the cost of the transportation approached the cost of the product, youd see a definite cutback in sales.
He said that the increasing costs and decreasing supply of trucks are also changing the way some people do business. While industry custom is for produce to be sold f.o.b. origin, more and more buyers are asking shippers to arrange for freight and even sell the product with a delivered price.
But the cost of transporting the product from shipper to receiver isnt the only area where fuel costs are having an effect. In fact, in many ways that increased cost is the easiest to cover. Mr. Stern said that a fuel surcharge or a skyrocketing spot-market rate tends to cover the cost of transportation. After all, if the fuel price gets too high, the trucker will just park his rig, forcing the buyer to pay the rate he needs to keep operating.
It is much more difficult for a shipper or a local wholesaler to pass on the increased costs he has because of the rising price of fuel.
Paul DeFranco of D. DeFranco & Sons, a repacker in Los Angeles, said that he has to absorb his increased costs. At this point, we dont have a surcharge and we havent raised our prices because of fuel costs.
Mr. DeFranco, who services retailers throughout Southern California, said that the company has tried to cut its costs by improving its efficiency. We never send a truck out half full anymore, he said. We have to combine our shipments. I have a couple of customers in San Bernardino (60 miles away), and I have to make sure that the deliveries are done at the same time.
Mr. DeFranco estimated that fuel costs represent about 20 percent of his overhead and they have doubled in the last year. I am not saying we havent raised our prices in the last year, but it hasnt been specifically because of fuel prices. If it went to $5 a gallon, Im still not sure Id raise the prices because of that.
Getting the product from the field to the shed has also increased, and that is also very difficult to pass on to the buyer. The market price is the market price.
You might be able to get a surcharge when it is short, said Mr. Stern, repeating an age-old produce truism, but if the market is long and you have lettuce or broccoli or oranges, you are not going to get any more for them.
The California Tomato Growers Association is in the business of representing processed tomato growers, most notably in bargaining with processors. While the costs of harvesting that crop are obviously different than what a fresh-market grower would experience, there is some relation between the two.
Ross Siragusa, CTGA president and chief executive officer, said that tomato growers are feeling the effects of these higher prices. He compared costs for the past two years and determined that there has been a huge increase related directly to the price of diesel and he did the study a few months ago when the cost was significantly lower.
The costs per acre for diesel for growing processing tomatoes in the 2003 crop was roughly $72 an acre. That has increased to just over $200 an acre in a matter of two years, so the net impact is a little over $3 a ton, Mr. Siragusa said. So the grower has gone backwards by the tune of $3 and this is using an off-road diesel price of $2.40. In terms of profitability for the growers this year with grower yields and all of these higher costs, they will definitely be in the hole.
Growers are getting about $50 per ton for their tomatoes this year, so the increased fuel cost alone is eating up 6 percent of that revenue. Figure a fuel cost of closer to $3 per gallon, and the result is a loss of an additional 1.5 percent of revenue.
The CTGA CEO said that growers will need to get a significant increase in the tonnage rate next year or they just wont plant tomatoes. He said that many growers are contemplating producing field crops, which have less risk and less up-front costs.
Fresh-market tomatoes and other fresh crops would have different actual costs, but the impact on the bottom line is probably similar.
