Eliminate Erratic Fuel Surcharges through Financial Hedging

Markets: Refined Products  | Commodity: Diesel  | Customer: Diesel Consumer

 

Situation

A common challenge for many mid-size trucking companies that haul consumer goods is a heavy reliance on fuel to fulfill the company's freight delivery commitments and the unknown cost of the fuel to the customer. In the past, companies have added a fuel surcharge to shipping invoices to address the rising fuel prices.

Although fuel surcharges appear equitable on the surface, often the customer is unaware of the additional cost and the impact on already thin margins. In addition, companies need to rely on dedicated resources and tools to manage and implement the fuel surcharge program. 

 Metal Extruder


There is an alternative approach to address challenges as well as to potentially create a competitive market advantage for your company and improve overall customer satisfaction. A financial hedge program can help protect cash flow and provide more certainty in financial outcomes.

Fuel price volatility has resulted in erratic surcharge rates in the past, which has led to confusion and frustration among customers forced to pay the rising cost of transporting freight. Customers often find that it is very difficult to manage an unpredictable cost structure, given the variability of fuel surcharges. Many of AEGIS’s customers are leveraging financial hedging to better manage these variable costs.

Solution

Team with AEGIS to define your success metrics such as baseline revenue and margin targets as well as the goals and objectives of your financial hedge program. Once the financial hedge program is aligned with your success metrics and has been implemented, you will then be able to forecast fuel costs, lock in margins, budget more effectively, mitigate price risk associated with market volatility, and improve overall customer satisfaction.

 

Outcome

By implementing a financial hedging program, you can effectively manage your customer relationships through a transparent and consistent pricing structure for an extended period with certainty on your fuel cost. This will enable you to reestablish trust and loyalty with existing clients while potentially improving your competitive advantage in the market.

Additionally, by implementing a financial hedging program, you can reduce the administrative time and resources associated with calculating the appropriate fuel surcharges for each contract, freeing up valuable resources to focus on other key initiatives.

Interested in discussing how we can help mitigate your price risk?

Talk to our Team

 
This case study is not required to be and has not been filed with the Commodity Futures Trading Commission ("CFTC"). The CFTC does not pass upon the adequacy or accuracy of this commodity trading advisor disclosure. Consequently, the CFTC has not reviewed or approved this case study. See further disclaimer below.
^