Tuesday, October 24, 2006

Fuel Surcharge: Still an Ugly Situation

Might get worse, too. Although this has been discussed here previously, I had my interest picqued again when I overheard a CSX employee comment on the recent 3rd Quarter Report. Mention was made of the upbeat nature of President Ward's comments, and that the issue of Fuel Surcharges was brought up in a way that indicated that changes might be on the horizon. You won't find such comments in the Report, however.

Customers are generally upset with some of the stunts that railroads are pulling these days. Bad feelings are resulting in the dreaded "R" word being bounced around. In this case, the bad word is "Reregulation".

Of course, the railroads don't like anyone messing with their situation.

Here's an example of why shippers are getting more and more vocal. Consider the BNSF, and its Fuel Surcharge on Intermodal Shipments. If you check out this article and click on the links to previous year's surcharges, you will find that these surcharges have ranged from a low of 4% to a high of 22.5%. Right now, it is hovering around 17% to 18%. You can also find out some of the complicated methods used to determine what this percentage is.

Customers have a tough time dealing with that large of fluctuation in tariffs. Pick your commodity, and it is easy to see why there might be issues with such fluctuations.

So what should be done? The quick and dirty way to start these Fuel Surcharges was to simply add the percentage onto whatever tariff was in place. Now, there is discussion about mileage based surcharges. Forget all of that.

The easy way is to change the basic tariff! Admit that fuel prices are NOT going back to the historical lows of a few years ago. Just raise the tariff, and get back to some surcharge that hovers around the 2% to 5% range. No one will be frothing, and no use of the "R" word will happen.

If fuel prices change dramatically, then simply change the basic tariff again. Isn't that what deregulation was supposed to allow in the first place?

The whole idea was so simple that it was even proposed here, and some time ago, too. The choice for Railroads is easy, do something that works, or face some government intervention of some kind down the track.


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