WALTHAM, Mass.—Most shippers expect record-high fuel surcharges will rise even further. That was one of the findings of an exclusive online poll of Logistics Management readers last month. Eighty-five percent of the 500-odd respondents said they expect to pay higher surcharges to motor carriers in the coming months.

The survey found that respondents were paying average surcharges for less-than-truckload (LTL) service of 12.2 percent above base rates, and average surcharges for truckload (TL) of 15.5 percent. Overall, 31 percent of the respondents reported that their average fuel surcharges ranged between 16 and 20 percent, while 19 percent said their average fuel surcharges exceeded 21 percent (see chart, left).

All things fuel-related continue to put pressure on shippers, and that is unlikely to change anytime soon. Crude oil prices have regularly exceeded $70 per barrel since April, and the average price of diesel is still hovering around the $3 mark. Add those concerns to worries about limited output by U.S. fuel refineries and potential problems complying with the Environmental Protection Agency's mandate for ultra-low-sulfur diesel, which goes into effect in October, and the fuel-cost picture becomes even uglier.

"The pressure won't ease until crude prices ease or demand subsides for diesel and gasoline, or both," said Bob Tippee, editor of Oil & Gas Journal, a Houston, Texas-based publication that has covered the petroleum industry since 1910. "It might require a recession, which soaring fuel prices certainly can cause," he added.

But that's unlikely to happen in the short term, so shippers must prepare for more increases in fuel costs as the peak shipping season nears.

Most survey respondents said they are doing just that. Nearly three-fourths (72 percent) said they planned to increase their transportation budgets to cover rising fuel-related costs. The average planned increase was 7.7 percent. The majority of those planning to increase budgets are playing it conservatively, with 42 percent expecting to tack on 6 percent to 10 percent, and 33 percent planning to add five percent or less (see chart, below).

Those estimates may turn out to be too conservative, according to one respondent, a shipper in the healthcare industry. "Going forward, we need to better allocate our budget dollars to be more aggressive and more prepared for fuel-surcharge increases," he said. "Our estimates for where we thought fuel prices would top off have been way off the last two or three years."

That's why shippers need to consider fuel costs when negotiating with motor carriers, said another respondent. "When it comes time to negotiate rates, carriers will be talking a lot about the cost of fuel and using it as a leverage point for general rate and linehaul increases," said Dustin Smith, North America transportation manager for International Paint LLC in Houston. "Shippers must be acutely aware of what percentage of their invoice cost is actual fuel surcharge."

One way to alleviate some of the pain of fluctuating prices, Smith said, is to maximize freight consolidation to spread fuel costs over more merchandise. He also suggested hedging with a fuel-price index based on the weekly national average diesel price issued by the U.S. Department of Energy (DOE).

Shippers need to keep a close eye on that number, as many carriers include clauses in their contracts that allow automatic surcharge increases based on the DOE's figures, said pricing consultant and LM columnist Ray Bohman. Carriers used to raise surcharges when diesel prices rose by five cents, and shippers might go several weeks without an increase. But now many carriers are raising surcharges weekly, even in one-cent increments, he said.

That method is likely to stay around for awhile. "Even if fuel prices went down substantially, carriers would continue to charge [in one-cent increments] by the week," Bohman said. "This way if prices go up, they can continue to recover their added costs much quicker."