How Fuel and Fuel Cards Impact Expenses

The Impact of Fuel Prices on Operations

To run a functional delivery operation, you need people and trucks. Your trucks, however, also need fuel. In most operations, fuel will be the third-highest expense you have as a contractor, behind your payroll and the maintenance of your vehicles. So, let’s take a minute to discuss how fuel can impact your operation and what you can do about it.

Because fuel is so dependent on the mileage your vehicles drive every day, you can expect a wide variance in fuel expenses for different businesses. Fuel can be as low as 5% of your Annual Revenue or as high as 20% of Annual Revenue, with some businesses even falling below or above that range.

You can’t control the length of the roads you have to drive on, but what can be done to help mitigate this necessary expense? The good news is that FedEx Ground provides a built-in hedge on fuel costs in your contract. This fuel hedge or “surcharge” is paid out differently if you are a P&D contractor or a linehaul contractor.

Linehaul

Linehaul operations receive a per-mile fuel offset from FedEx Ground based on the price of diesel in the zip code of dispatch.

This means that if you have a run from St. Louis to Phoenix, you receive a fuel offset based on the diesel prices in St. Louis. And if you then go from Phoenix to Los Angeles, you receive a fuel offset based on prices in Phoenix. The offset considers each leg of the run.

FedEx Ground adjusts the fuel offset weekly and accounts for every $0.10 move that diesel makes. The adjustment is a fraction of the diesel price move. For example, if diesel fuel costs go up by $0.10 then the fuel offset may go up by one cent.

P&D

FedEx Ground P&D contracts include a Per Stop Fuel Surcharge. This variable charge is paid per stop and, similar to linehaul operations, fluctuates weekly with current diesel fuel prices in your delivery market. Also, like linehaul, the Per Stop Fuel Surcharge will adjust only a fraction of the diesel price move.

Fuel cards Save thousands of dollars per year

Fuel cards are the preferred way contractors have drivers pay for fuel. These cards look like credit cards, but there are important differences between a fuel card and a credit card.

When you sign up with a fuel card program you will receive fuel cards for all current drivers and a clear, easy way to obtain additional cards. Some contractors will have a unique card for each individual driver, and some will choose to designate a card to the vehicle instead. The overall point is that you have one, and drivers should use this card (and this card only) to refuel their fleet vehicle.

“Based on industry averages, a fleet with 20 vehicles loses approximately $2,000 per year from fraudulent transactions.”

Fuel Card Benefits

Fuel cards make bookkeeping tasks much easier for managers and owners. You will have easy, online access to review fuel purchases by each individual and the entire team—broken down by week, month, and year.

Further, fuel cards give you one less thing to worry about when you onboard new drivers. Since you are able to easily obtain new cards, you can provide one to your new driver on day one. These fuel cards are more secure than employee credit cards and easier to verify than reimbursing personal credit card expenses.

One of the clearest benefits fuel cards can offer is theft deterrence and protection. Based on industry averages, a fleet with 20 vehicles loses approximately $2,000 per year from fraudulent transactions. In some organizations, this could be much more depending on the quality of your workforce and the cultivation of bad habits. These unauthorized purchases include buying gas for personal use or for non-fuel purchases inside a gas station.

Fuel cards allow employers to customize each card. For example, owners may limit the hours of use or the geographic location so that the card cannot be used when your drivers are off work or in territories not served by your business. The cards will also alert you for unusual uses and you can monitor the daily/weekly/monthly spend per driver for abnormalities.

Another clear way that fuel cards save businesses money is through negotiated discounts. Owners may be able to enroll in a program that offers reduced fuel costs at the pump. Additionally, some programs have reward points for drivers so they can build up free drinks or snacks.

Differences for Linehaul Businesses

Fuel cards are most helpful for FedEx Ground P&D businesses. Linehaul businesses must use Electronic Fund Source (EFS) cards so that all linehaul fuel purchases flow through the FedEx Ground settlement. This requirement is how FedEx Ground tracks fuel for the International Fuel Tax Agreement (IFTA).

We’ve learned through many tests and personal experiences that fuel provided at a discount from FedEx Ground inside your terminal is the most cost-effective. Not all terminals offer a fuel yard, but if you have that option we recommend leveraging this source. Contractors and drivers must use EFS cards for fuel at a terminal’s fuel yard, thus you may need a two-card fuel strategy—an EFS card for “inside” fuel yard purchases and another fuel program for cost savings on “outside” fuel purchases. This is especially true for territories where mileage is high and drivers fill up multiple times per day.

The Bottom Line

You are still going to absorb the pain of rising diesel fuel prices. No doubt about it: your profit margins are better when fuel prices are lower. However, the offset from FedEx Ground is extremely helpful and necessary to run a profitable operation.

If prices were to spike substantially (such as during wartime or following a natural disaster), FedEx Ground would likely introduce some type of additional fuel surcharge.

And lastly, be sure you have a quality fuel card system in place. By properly managing your fuel expenses, you can weed out fraud in your organization and make immediate improvements to your bottom line.

Route Consultant Fuel Card

The Route Consultant Purchasing Alliance (RCPA) Fuel Card is an innovative program that benefits from the collective purchasing power of the entire contracting network. The RCPA Fuel Card, powered by COMDATA, increases your fuel savings and improves your cash flow. The RCPA Fuel Card is accepted at over 400,000 locations tailored for the logistics industry. If you’d like to learn more about the RCPA Fuel Card and how your business can benefit from fuel savings and better control, follow the button below to learn more and submit an application.

Get the Most Out of Your Operation

Route Consultant is the premiere consultant and educator in the last-mile delivery and logistics space. Want to get the most out of your investment? Looking to optimize your operation and maximize profits? Need to teach someone how to successfully manage a delivery operation? Our suite of educational courses capitalize on decades of operational experience to bring you battle-tested strategies and best practices to find success in your business.