Configuring a Fuel Surcharge

A Fuel Surcharge (FSC) is an additional cost added to freight charges by the carrier. The FSC is charged based on the constant alteration in fuel prices. FSC helps the carrier offset the effects that fuel costs have on the carrier’s cost of doing business. The most common index used for FSC calculations is the DOE (Department of Energy) Index. The index and frequency used is determined by the carrier contract. In OTM, index is referred to as rate Factor Value.

Fuel Surcharges can be based on mileages, percentages, or other metrics. Most common types of fuel surcharges are unit based or percentage based. For example,

• Unit based: Charge based on cost per mile driven ($/mile ). For every $0.10 increase in rate factor, the fuel surcharge increases by $0.045/mile
• Percentage based: Cost determined as a percentage of total shipment cost per mile driven ($/mile). For every $0.10 increase in rate factor, the fuel surcharge increases by 0.5%.

While rating a shipment, OTM uses the rate factor rule to calculate the accessorial cost which is effective for the shipment's start date. For more details, see the Configuring a Fuel Surcharge section below.

Configuring a Fuel Surcharge

Perform the following steps to configure a fuel surcharge:

1. Create an Accessorial Cost. Accessorial cost is an extra cost charged by carriers for additional services such as waiting time, extra fuel, or storage, etc. Accessorial cost is not applied to a shipment unless you specify that accessorial in the rate offering or rate record.
2. Create an Accessorial Code. Accessorial code defines types of accessorial that may apply to a shipment.
3. Create a new Rate Factor. Setup the source of the rate factor based on the index used for FSC calculations. When the new index is published weekly, you need to keep updating the rate factor with the effective and expiration dates.
4. Create a new Rate Factor Rule. Use this rule to specify how to calculate an accessorial cost. The rate factor rule associates the rate factor with the accessorial code at rate record or rate offering or accessorial default.
   1. Name the rule.
   2. Select an Accessorial Code.
   3. Select an Accessorial Cost template. This cost is just a template which defines how an accessorial is charged.

Now, select one of the following Rate Record Types:

• • As an Accessorial Default. Any rate record or rate offering can point to this accessorial.
  • For one or many Rate Offerings.
  • For one or many Rate Records.

5. Create a Rate Factor Rule Detail.

Below are the factors used in the rate factor rule process:

The surcharge can be based on Cost Type whose possible values are :

Look-up - OTM looks up in the Maximum Factor Value and the Cost Value fields. If the values are not present in these fields, OTM considers values in the Factor Increase and Cost Increase fields which are defined in the rate factor rule. Let’s look at the following two scenarios with values defined in the Maximum Factor Value and Cost Value fields as shown in the following table: :

Maximum Factor Value	Cost Value
1.0	0.1
2.5	0.2
3.0	0.3

 

• • Scenario 1: The source rate Factor Value is 2.54,which is within the Maximum Factor. As per the values in the table above, OTM verifies if the rate factor value 2.54 falls within the range of maximum factor value. In this case, OTM considers 3.0 as the maximum factor value and charges 0.3 Cost Value as the fuel surcharge.
  • Scenario 2: The source rate Factor Value is 5, which exceeds the Maximum Factor Value: As per the values in the table above, OTM cannot consider maximum factor values from the table as the rate factor value being 5 exceeds the maximum factor value. So OTM considers the values given in the Factor Increase (0.1) and Cost Increase (3) fields and calculates the fuel surcharge using the following formula: Cost Value + ((Factor Value – Maximum Factor Value) /  Factor Increase ) * cost Increase i.e., 0.3+((5-3)/0.1) *3= 60.3.

Copy Factor – The rate Factor Value is considered as the accessorial cost. OTM copies the value in the Factor Value field and considers the Effective Date and Expiration Date which are defined in Rate Factor Source and then charges the accessorial cost while rating a shipment. For example, if the effective date is 2016-11-01 and the expiration date is 2016-11-30, the rate factor value is 2.54. OTM charges 2.54 per unit or percentage as the accessorial cost to those shipments, where the effective start date of the shipment falls between the effective date and expiration date.

Escalator - OTM calculates the percentage increase of the current rate factor value from the first rate factor value and copies the value into the accessorial cost and uses that value as a multiplier. For example, the current rate factor value is 5 and the first rate factor value is 1, then the percentage of increase between these two factor values is 400 i.e, (5-1)/1*100=400 which is the accessorial cost and OTM uses that value as a multiplier.

Apply To describes whether the rule should be applied per unit basis i.e., charged based on cost per mile driven ($/mile) or percentage basis i.e., for every $0.10 increase in Rate Factor, Fuel Surcharge increases by 0.5%

Effective Date of an accessorial cost is calculated in the rate factor rule using the following fields:  

• • Can use effective date of rule or effective date of a rate factor with or without an offset specified by Source Effective Date and Offset Effective Date.
  • Can define a fixed date specified by Fixed Effective. Day of Month

Expiration Date of an accessorial cost is calculated in the rate factor rule using the following fields:

• • Can use expiration date of rule or expiration date of a rate factor with or without an offset which is specified by Source Expiration Date and Offset Expiration Date.
  • Can define a fixed date specified by Fixed Expiration Day of Month .

Example

Let’s see how OTM determines an accessorial cost in the following example.

1. Create an Accessorial Cost with Charge 100.00 USD per Ship Unit.
2. Create an Accessorial Code.
3. Create Rate Factor Source with Factor value as 25 along with the Effective Date (2016-06-01) and Expiration Date (2016-06-11).   
4. Create a Rate Factor Rule and associate the rule with the rate factor source, accessorial code, accessorial cost, and then select the Rate Record Type.
5. In Rate Factor Rule Detail, enter effective and expiration dates and then select the Lookup Cost Type.  
6. Select Per Unit from the Apply To drop-down list and enter the Factor Increase (0.1) and Cost Increase (0.5) values.
7. Enter Maximum Factor Value (28) and Cost Value (4).
8. Click Finished.

If a shipment’s start date falls between the rate factor source Effective Date and Expiration Date (2016-06-01 - 2016-06-11), OTM charges Cost Value of 4 as the fuel surcharge while rating a shipment because the factor value falls within the range of maximum factor value.  

Let's look at another example: If the Factor value is 29 with the Effective Date (2016-06-12) and Expiration Date (2016-06-17). When a shipment’s start date falls between the rate factor source Effective Date and Expiration Date (2016-06-12 - 2016-06-17), OTM cannot consider maximum factor value as the rate factor value being 29 exceeds the maximum factor value 28. So OTM considers the values given in the Factor Increase (0.1) and Cost Increase (0.5) fields and calculates the fuel surcharge using the following formula: Cost Value + ((Factor Value – Maximum Factor Value) /  Factor Increase ) * cost Increase i.e., 4+((29-28)/0.1)*0.5 = 9. OTM charges 9 as the fuel surcharge.