Supply Excellence — Take Control of Fuel Surcharges

Take Control of Fuel Surcharges

August 13th, 2008 · by Rachel Rutkoski · No Comments · LCCS and trade, best practices, oil/energy, supply management

The world’s largest airline, Air France-KLM, has had some very ugly headlines in the last few weeks…especially if you are responsible for sourcing air freight transportation.

First, they were among the four major carriers who admitted to being part of an international price-fixing cartel and agreed to pay a $350 million fine to the US Justice Department (which is the 2nd biggest fine ever for cartel-like behavior). Among other things, the cartel was accused of secretly meeting to fix freight charges, fuel surcharges and security. Oops.

Second, Air France-KLM imposed a new fuel surcharge program based on mileage rather than flat fees. When that new pricing model rolls out on September 1st, the surcharges will also be rolled into the rates and therefore ‘commissionable.’ So despite the potentially higher costs, forwarders may even push shippers towards AF-KLM, since their commissions may be higher. Although as of right now other carriers have not followed suit, I won’t be surprised to see them due so if AF-KLM’s move helps their marketshare or revenues.

These two developments should highlight why it’s so important to take control of your fuel program. If you haven’t already, consider setting a standardized, carrier-agnostic fuel surcharge table. As we’ve discussed here before, fuel surcharges are an area where carriers have leeway to negotiate. In a time of dubious cartel behavior, different surcharge tables, different surcharge pricing models and changing commission incentives for forwarders, you should be in a strong position to make your case internally if management still isn’t onboard and with your carriers, who likely have excess capacity and will do what it takes to keep your business.

Rachel Rutkoski is a Category Manager for Transportation and Logistics in Ariba’s Global Services Organization. Rachel is recognized by the Institute for Supply Management as a Certified Purchasing Manager (C.P.M.) and has several years experience as a supply chain and transportation analyst in Fortune 500 companies.

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