KANSAS CITY, MO, May 14, 2022 -- XBE released support for cost indexes and automated rate adjustments on February 24, 2022. While diesel prices rose throughout 2021, prices continued to increase in early 2022 along with most other commodities due mostly to demand pressure. The war in Ukraine, which also started on February 24th, then caused significant supply pressure and uncertainty.
At the end of 2020, average diesel prices were $2.63/gallon. By the end of 2021, the price had risen to $3.61/gallon. By February 21, 2022, right before the war in Ukraine began, the price had risen to $4.05/gallon. As of May 9, 2022, the price was $5.62/gallon. In just over 16 months, diesel prices had increased by 113%.
"While fuel surcharges are very common in other segments of the transportation industry, they're only somewhat common in material hauling (especially asphalt and cement)," said Sean Devine, Founder & CEO of XBE. "A typical truck hauling materials might average 25 miles/hour with a fuel economy of 4.5 miles/gallon. If rates had been negotiated at the end of 2020 when diesel was $2.63/gallon and the rate was $100/hour, then diesel cost would have represented 14.6% of revenue. Typical operating profits for a well run material trucking company are ~15% of revenue. And so, the rapid run up in fuel would erase all of the profits (and then some) of most trucking companies if rates stay the same for the rest of 2022."
But, the problem is not just that fuel prices have risen, it's that fuel prices are uncertain. Whoever bears that risk must have corresponding balance sheet reserves or some other form of insurance. Since most material trucking companies are small with thin balance sheets, their cost of capital is relatively very high as compared to their large contractor customers. That means that over the long run it is less expensive to have contractors bear the fuel price risk, not trucking companies.
The ideal fuel surcharge adjusts trucking prices to match changes in fuel costs. There shouldn't be an over-recovery or under-recovery, but a tight fit between the cost and revenue curves.
XBE designed its rate adjustment infrastructure to make it easy to create and implement optimal fuel surcharge schedules. This includes support for negative adjustments when prices fall, multiple and arbitrary cost indexes, and multiple adjustments. Application of rate adjustments is completely automated, and the effect of rate adjustments is visible within tenders prior to acceptance.
Using these capabilities, XBE customers have been able to implement the fuel surcharge programs make sense for their truckers and customers.
Adoption of these features has been rapid. Within three months, the percentage of XBE customers' trucking costs subject to a fuel surcharge went from 0% to 52%.
While everyone would prefer low and stable diesel prices, that's not the situation that we're in. The XBE platform makes it easy for customers to focus on solving their business problems knowing that the software will take care of the rest.
About XBE
XBE is the science and technology competitive advantage of horizontal construction leaders. The best run on us. For more information, visit www.x-b-e.com.