For fleets and shippers tired of the ever-changing and complex formulas that make up fuel surcharges and prevent transparency when it comes to the fuel cost to actually move a shipment, Genesis Fuel Corporation believes it has the solution.
Earlier this year, the start-up company launched “Digital Diesel,” and it brought the plan and a new pricing engine tool to the Mid-America Trucking Show last month in Louisville, Kentucky, to convince truckers.
Digital Diesel allows a customer to buy diesel fuel today at a set price, regardless of when the truck will fuel up, the company said. This locked-in price gives both the trucking company and shipper a fixed fuel cost. Currently, carriers bid on a load and typically apply a fuel surcharge since it is impossible to know the cost of fuel for that load weeks or months in advance. The fuel surcharge is designed to allow the carrier to recoup the actual cost of fuel upon pickup or delivery of the load. It doesn’t, however, provide price transparency until after the fact. Genesis Fuel insists its program does that.
“They can buy fuel at today’s price and we can hold it on a ‘digital’ level,” Steve Schmidt, CEO explained.
While the concept sounds confusing, Schmidt illustrated with a simple explanation:
1. A carrier and a shipper agree on a load
2. The carrier goes on the Digital Diesel dashboard and inputs the route the shipment would travel and purchases the fuel needed for that trip (the fuel price is based on the most expensive station in the most expensive state along the route)
3. Genesis Fuel charges a 30 cents per gallon surcharge to lock in the price, which allows the carrier to go back to the shipper with the exact price of the fuel (plus surcharge) to move that shipment.
There are over 9,800 fueling locations nationwide in the program. When fuel is contracted, Genesis Fuel sends the carrier a fuel card (they’ve partnered with WEX and EFS for the fuel card), or multiple fuel cards if the contract calls for that.
“The clients that purchase the fuel are in control of it at all times,” Bruce Dean, chief operating officer, said. “If the price is less than the card purchase price, money could be refunded.”
The Digital Diesel Fuel Price Protection program allows users to protect themselves against a 15-cent or more drop in fuel price. If customers fuel up at a lower price per gallon than their Digital Diesel locked-in cost, Genesis Fuel Corporation credits the difference even before the driver pulls out of the truck stop. When the pump price is higher than the contracted rate, the customer pockets the difference, and that profit goes straight to the bottom line.
According to Schmidt, the fuel surcharge of 30 cents per gallon works out to about 4 cents per mile for a truck averaging 7 miles per gallon. The optional Fuel Price Protection program adds an additional 5 cents per gallon to the fuel surcharge.
“The carrier can charge the shipper a guaranteed [fuel cost] plus the known surcharge,” he said.
Genesis uses U.S. Energy Information Administration pricing upon which to base its proprietary algorithms that run the program.
One key to the program is the importance of planning. If a route will take a driver from New Mexico to Florida and a fuel card is purchased for Louisiana, it will only work at a station in Louisiana. The driver can still fill up where he wishes, but outside of Louisiana would be an out-of-pocket expense. That cost is not refundable.
Schmidt said the company’s new Fuel Pricing Engine allows a carrier or shipper to input the specifics of a freight run before quoting the price and it will provide the exact cost for the fuel to make that run. Simply input the key information and the route the truck will run and the system tells you the highest price in each state along the route and will calculate the cost of the Digital Diesel contract.
The company believes the industry, especially small fleets and owner-operators that don’t have pricing power to purchase fuel in bulk, is ready for this type of hedging program.
“We’ve spent four years perfecting our business model,” Schmidt said. “We’ve also developed a dynamic and secure user interface that carriers can easily use to manage, track and control their Genesis Fuel Cards and maximize the program’s effectiveness. Based on our beta tests and our preliminary work with various carriers, we believe we have something here that will fundamentally change the industry.”