Defining Outsourcing

Many Americans have an unfavorable view of outsourcing. The older generations commonly mistake outsourcing for offshoring. Younger generations grew up hearing outsourcing used in the same sentences as job losses, layoffs, or companies moving departments to foreign countries. Additionally, many Millennials and Gen X’ers remember the original NAFTA discussions in the 1990’s and there are as many who viewed it negatively at the time as there are who viewed it positively. All across the region commonly referred to as the “Rust Belt” the word outsourcing is a four-letter word.

The goal of every business is to generate revenue from the production and exchange of a product or service. As such, the businesses which sell tangible goods must find a way to transport that product from production to consumption in the most time and cost effective way possible.

Here’s the rub, transportation isn’t cheap. In 2017, U.S. companies spent a record $1.5 trillion on logistics costs alone, a 6.2% increase from 2016. These days, many companies can find themselves devoting a significant part of their annual budget to transportation costs; additionally, interest rates are on the rise, tariffs continue to be imposed on a growing number of goods, and fuel prices are increasing. In this economic climate it looks like companies may just have to brace for impact.How can your company plan for the future in these uncertain times? What are practices your company can implement right now that will significantly reduce transportation costs?

What are Fuel Surcharges?

At their most basic, fuel surcharges are an additional sum of money that carriers charge shippers  They are found on the invoices of national, regional, and local carriers, often, with no explanation of how they are calculated. Calculating the surcharge as a percentage of the average fuel prices at the time of shipment is standard practice for shippers. However, there is sometimes no telling what other factors they include in the calculation.

Many have questioned whether the fuel surcharge is used to stabilize rates by mitigating unpredictable fuel costs like the carriers claim, or if the additional line item is just a money maker for freight companies. While there is some quick math involved, understanding the fuel surcharge on your next invoice is easier than you think.

There is no universal formula to calculating fuel surcharges leaving each carrier to tweak the numbers for their specific circumstances. However, most carriers publish their percentages or ratios in their tariffs which are easily found on their websites, but not always explained.