Standard & PoorÆs says fuel surcharges boost U.S. trucking sector
Standard & Poor's Ratings Services has issued a report saying U.S. trucking companies have offset much of their exposure to volatile energy prices by imposing fuel surcharges that have added 7 percent to freight costs of less-than-truckload shipments and 14 percent to the freight cost of truckload shipments.
Other methods for managing diesel fuel expenses 'include hedging and bulk fuel purchases, which locks in the fuel price for a given volume over a specified period of time,' S & P's ratings services said in a statement.
'While all three methods allow a company to manage a portion of its fuel expense, Standard & Poor's views fuel surcharges as more effective than hedging or bulk purchases,' said Kenneth L. Farer, a credit analyst for S & P's ratings services.
'From a credit perspective, Standard & Poor's views surcharges favorably, because they are included in the contract between the shipper and trucking company and rates charged move with a published index,' Farer explained.
Companies with greater exposure to markets with higher fuel prices, such as the U.S. West Coast, that levy fuel surcharges based on the national average price, 'would have a slight mismatch between the company's fuel costs and the fuel surcharge collected,' S&P's ratings services said.
For that reason, Standard & Poor's considers a fuel surcharge based on a regional pricing mechanism as more favorable than one based on national pricing. 'In addition, the modification of fuel surcharges on a weekly basis is more favorable than on a monthly or a quarterly basis,' S&P's ratings services noted.
Standard & Poor's, a division of The McGraw-Hill Cos. that has 5,000 employees in 20 countries, provides independent credit ratings, risk evaluation, and investment research. For information about obtaining a copy of S&P's report 'Credit FAQ: Fuel and the U.S. Trucking Sector,' call (212) 438-9823.