A few weeks ago, I got a letter from a company that maintains one of our buildings. “I am sure you are aware that fuel prices have been rising steadily,” it began. “We hoped that this would be a short-term inconvenience, but we can no longer continue to absorb this increased cost. Therefore, as a temporary measure, we are including a fuel surcharge on services rendered at your facility.” Seems like anyone can tack a fuel surcharge onto an invoice these days.
For truckers, fuel surcharges have been a fixture on freight bills for the better part of five years, and the industry has done a good job educating shippers about why indexed surcharges are fair and reasonable. But in the past six months or so, there's been a shift in the way shippers are reacting to surcharges — and it's putting salespeople on shaky ground.
First, higher transportation costs have caused shippers to raise prices this year. When business slows dramatically, shippers get nervous like everyone else and want to cut spending.
Ordinarily, you may be able to drop prices during a downturn and remain profitable. But this isn't an ordinary recession. As the economy has gone in the tank, fuel costs have become a bigger chunk of the freight bill. If you treat a fuel surcharge like a revenue generator or a charge to be negotiated, customers will wonder whether it's a legitimate charge at all.
Second, as shippers have become better informed, they're asking tougher questions. But what shippers really want to know is this: Can I trust you to give me a fair deal?
Your entire sales organization has to be able to answer that question with total confidence. It's hard enough to do business when diesel is approaching $5 a gallon, but it's impossible when your customer doesn't trust you. Here are five rules to help you maintain that trust:
- Be open and honest
Some shippers want a separate surcharge and a low-base contract rate. I prefer a higher overall rate based on the cost to move the load. Define the options for your salespeople so they can build solutions. For instance, can they cap or waive a surcharge in exchange for a higher base rate? Prepare your salespeople to share why and how surcharges are calculated. Sure, you've had this talk with the traffic manager. Today, it's his CFO asking. What are you doing to communicate with him?
- Do your part
You're the freight-transportation expert. Help customers consolidate shipments and maximize capacity. Explain how you're controlling fuel costs in order to reduce the burden for everyone.
- Watch your admin costs
Unless you're equipped for it, assigning a multitude of surcharge percentages and formulas may be an administrative nightmare.
- Don't negotiate fuel
You're not just undercutting a competitor when you give ground on fuel surcharges. You're undercutting your ability to pay your fuel bill.
- Exit interviews
In a low-price, high-cost environment, you're better off walking away from an account than losing money on it. Don't get angry. Talk to the customer about what he's looking for from his carrier. If it's a rock-bottom price, chances are your customer will be back when he realizes that he gets what he pays for.
No one can say where fuel costs will be next week or next year. But, if you can take the mystery out of pricing, you won't have to convince your customers that you're treating them fairly. They'll trust that you are.
Mike McCarron is managing partner at the MSM Group of Companies, which specializes in transportation and logistics service between Canada and the United States.