We thought fuel surcharges, those pesky vendor add-ons, were a thing of the past. That past was the summer of 2008, the last time we experienced a record national average fuel price per gallon. There is little doubt, given recent fuel price escalation, that surcharges either are or will be back.
Honestly, fuel surcharges are a fair and equitable way for our service providers to offset their increased fuel costs. Some governments may prefer to hold vendors accountable for their agreed- upon rates but to be fair, their rates were set when fuel prices were “reasonable.” As good stewards and with our desire to treat the marketplace fairly, fuel surcharges should be allowed, regardless of contract languages or purchase order rate constraints. The question for us is how we will monitor and control them.
Here’s an idea: Why don’t you set and control them? In the summer of 2008, in Polk County, Florida, we took several steps to mitigate fuel prices that had exceeded $4.00/gallon for the first time in history. Among those steps was notifying our towing, parts delivery, on-site service providers, and transport companies that the county (fleet management) would set the surcharge rate on a per-mile basis and add that amount to their invoices prior to payment. Using this method, we controlled the surcharges, we avoided the often-arbitrary assessments vendors would add, and vendors actually appreciated our effort.
Our method used the simple spreadsheet below. We set three categories of vehicles: heavy truck/transport/wrecker/Landoll; medium-duty flatbed roll-off or rear drag wrecker; and compact car/pickup. We used a base average miles per gallon for each category, the base fuel price/gallon (price at the end of January 2022 for instance in today’s world), and the current price/gallon when the services were rendered. Our spreadsheet calculated the increased fuel cost to our vendors in a cost/mile calculation. Using their invoices, on which mileage was reported, we added the additional fuel cost as calculated by our spreadsheet to their payments. Our finance department appreciated this method as well because it was well justified and documented.
The only modification necessary is shown in the column for the new cost/gallon, where staff can enter today’s fuel cost/gallon using OPIS, the local 7-11, or whatever source seems to reflect the current market price in your area.
This is an easy step that will pay dividends in vendor relationships, give you more control over your costs, protect against arbitrary price hikes, and is easily justifiable both for your accounting and for the marketplace.