Monday, November 10, 2008

Fuelish Surcharges

Rising crude-oil and freight prices have meant higher fuel surcharges for trucking, special freight charges for paper, and increased prices for ink this year. So what’s happening now that oil and freight prices are plummeting? In many cases, nothing.

Fuel-related price increases tend to be what economists call “sticky.” That means the suppliers "stick" it to you when they can, and you tend to be "stuck" with the surcharges for awhile even after their justification has disappeared (or something like that. Econ 101 was a long time ago.)

One paper executive recently told a group of customers that declining crude-oil prices were not showing up yet in diesel or freight costs. Don’t believe it. For the record, here is what federal agencies have to say:

The U.S.'s average on-highway diesel price has dropped 38% in the past three months. The producer price index for long-distance truckload freight dropped more than 2% from August to September and no doubt will be even lower when the October numbers come out.

Printing contracts that include significant freight services typically have a chart or formula stipulating what the fuel surcharge will be based on a Department of Energy index. Other freight providers have surcharges that tend to track market prices for diesel, though they can be a bit slow about decreasing them when fuel prices drop unless there is contract language governing such surcharges.

Ink companies make a big deal of announcing price increases when oil costs are rising. That sets the stage for printers to pass the price increases along to end users. The ink companies are much quieter when declining oil costs cause them to trim their prices.

The freight charges imposed by paper companies have an illogic of their own. Want to know how your supplier’s freight charges are being adjusted in light of declining freight costs? Sorry, it will take a couple of weeks to run the numbers; the Ouija board had to be sent out for repairs.

At least one paper manufacturer has been assessing surcharges on full-truckload orders to destinations in the same state as the mill. And plenty of folks have reported getting a price quote from a paper supplier and then having a surprise freight-surcharge show up on the invoice.

Fortunately, the U.S. Postal Service (the largest vendor for many publishers and cataloguers) is not tacking on fuel or freight surcharges. In fact, USPS is actually reducing its customers’ freight costs via informal consolidation of dropship facilities, as shown last month in our “Death of the SCF” and “Death of the SCF, Part 2” articles. (Look soon for “Death of the SCF, Part 3”, to be followed eventually by “Night of the Living SCF” and “Death of the SCF Meets Godzilla”.)

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