Horizon Newsletter • January 13, 2023
Estimating Over-Recovery: Assessing the Fit of Fuel Surcharges to Actual Cost Changes

XBE introduced robust fuel surcharge (rate adjustment) support in Q1 of 2022, just as diesel prices were skyrocketing. Almost all XBE customers implemented fuel surcharge rate adjustments shortly thereafter to transfer risk from truckers and to assure the steady supply of trucking capacity throughout the 2022 season, regardless of diesel price changes.

Given the stress and uncertainty of early 2022, many organizations implemented fuel surcharges that were based on trucker/customer requests, or based on assumptions backed by relatively little data and analysis.

As customers assess their trucking rates for 2023, we've had some conversations about those fuel surcharges and how to estimate the degree to which they fit actual fuel cost changes.

As a reminder, XBE fuel surcharge rate adjustments are built on two key numbers:

  • Zero-Intercept Cost Index Value: The diesel price per gallon assumed by the base price per unit.
  • Zero-Intercept Ratio: The percentage of the base price that is diesel cost.

The zero-intercept cost index value can't really be calculated. It's the fuel price that was assumed when the base price per unit was set. Usually that would be the average price per gallon for some period prior to the fuel surcharge being created, but it could be another value.

The zero-intercept ratio is a function of the base price per unit, and the gallons of diesel actually consumed per unit. The gallons of diesel per unit are a function of speed (average miles per unit), and fuel economy (average miles per gallon).

Given geographical and efficiency differences between markets, the gallons per unit can vary quite a bit and are worth a close look.

For example, we helped analyze the actual over-recovery for a trucker in 2022, and based on their relatively low miles per hour, relatively high miles per gallon, and relatively high base price per hour, we estimated that they over-recovered approximately $100K (nearly 4% of their revenue).

This is a problem in two ways. First, it's money paid to truckers that could have been avoided. Second, it could create new supply risk if truckers depend on the over-recovery and diesel prices goes down.

Whether or not you own a trucker, we recommend that contractors estimate the over-recovery (if any) that truckers experienced during 2022. If there is an over-recovery, you may consider adjusting the zero-intercept ratio for 2023.

We believe that it's reasonable to ask truckers for their data about the miles and gallons consumed by truck in 2022. While you can estimate both values, we believe that discussing the topic with truckers helps reinforce the purpose of the fuel surcharge which is simply to reimburse truckers for changes in fuel costs as accurately as possible.

If you're viewing this on the web or in the XBE app, see the spreadsheet below for an example calculation. Click here to download the template.

Please reach out to us if you have any questions or ideas in this area. We're happy to collaborate.


Sean Devine
Founder & CEO, XBE