This is the third and final column in a series on surcharges for both for-hire carriers and private fleets. Since there will always be unexpected variations in cost that are virtually impossible to recover over a reasonable period of time, it's reasonable that some people would see surcharges as a way of providing parity or achieving fairness.
Let me be clear, however, that I do not favor surcharges. They have two fundamental flaws. First, as a conscientious supplier of a valuable service, I should be able get a fair increase in times of unexpected cost increases. If my service is just a commodity, then it has to be priced as such. At that point, I should be prepared to move in or out of a market as the lowest provider cost dictates.
Since I do not see the movement of freight as a commodity, it is not consistent that I would accept the low-cost scenario. I am not naive enough to believe that there are not short-term circumstances where a carrier has to grin and bear it. However, long after the grin is gone the carrier should be able to make rate adjustments, develop a different client base, or reduce service levels to make the business profitable. That's easy for me to say, since I've never had to do it. But there are those who have, and we can learn a lesson from them.
The second flaw, for the for-hire carrier, is that they are often required to open their books to “share important information.” Until shippers or receivers have to open their books to show the cost of transportation relative to the total cost of their delivered product, I recommend keeping them at arm's length. The carriers — not their customers — should run their businesses. Again, nicely said. But this time it's from someone who has done it many times.
However, if we are going to institute a surcharge mechanism, there are ways to adjust costs for services to reflect shocks to the system. By shocks I'm referring to things like insurance increases, fuel increases resulting from supply disruptions, and fuel tax increases used to offset local & state budget deficits. In general, I think that surcharges are more suitable for long-term contracts — those exceeding six months in duration.
In all cases, I would recommend the use of published data relating to the cost involved. As an example, there is fuel price data by type of fuel and region. Fuel tax rates are also publicly available. As far as trucking insurance is concerned, however, there is no specific data available. Consequently, I think it's important that the industry demand more complete data; it's especially important to be able to compare rates across different industry sectors, such as hazmat vs. household goods moving. Since trucking foots a good portion of the bill for data collection at federal and state levels, we have a right to demand better information.
For those of you who have been able to find the shippers and receivers that want to see you stay in business as a valued provider of an important service, you can use cost ratios found in publications such as the Motor Carrier Annual Report, published by American Trucking Assns. There are enough carriers to form a reasonable peer group to show relative costs by major category. Once an index for that cost is established, a variance/adjustment can be calculated using your experience with the costs. Depending upon how comfortable you are with letting your customers look at your books, you can chose to be more specific.. The adjustment should be made as frequently as the underlying data permits. Just remember, what goes up may also come down.