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White Paper on Fuel Surcharges

White Paper provided By
Phoenix Recycling Inc.

The Truth about Fuel Surcharges in the Shredding and Storage Industry.

One of the largest complaints we hear from potential customers is that there are not happy with the fuel surcharges charged by our competitors.  We don’t hear the same concerns from our customers because we don’t charge them.  We decided to analyze the fuel surcharge policies of our competitors to see if the charges were justified and what effect they had on the profitability of accounts.

Before we give you the results of our analysis we though it important to show you how our numbers were calculated.

We used data from MJ Ervin and Associates Canada National Average Diesel Fuel Prices for the reported diesel fuel pricing information.  This is the exact same data that our competitors use to calculate fuel surcharges.  We also used data collected from 146,000 service calls we completed over the last 5 years.

We calculated that our average fuel consumption per service call was 1.23 liters per call.  This number includes data from our small service vans, our fleet of large 5 ton trucks, and our Onsite shredding trucks.  No distinction was made for the size of calls; this is average of all large and small service calls.  The number is calculated by taking the total number of liters of fuel consumed over the survey period and dividing it by the number of service calls in the survey period.

MJ Ervin and Associates Canada National Average Diesel Average fuel price from November 2008 to July 2009 was $0.9893/liter

The average fuel cost per service call (both large and small) is 1.2313liters per pickup times the average price per liter of 0.9893/liter.  This results in an average fuel cost per pickup of 1.2181/service call.

What happens to the real cost as fuel goes up?

Our competitor’s fuel surcharge based on diesel at 0.9893/liter is 1.8%

If the average fuel price increased by $0.10/liter to 1.0893 then their fuel surcharge increases to 4.2%

The fuel portion of pickup cost goes from $1.2181/service call to 1.3412/service call an increase of $0.1231/pickup

Service price Current Fuel surcharge 1.80% New Fuel surcharge 4.20% Increased Revenue Increased cost New Margin Percent increase  in Profit
40 0.72 1.68 0.96 0.1231 0.8369 2.09%
80 1.44 3.36 1.92 0.1231 1.7969 2.25%
120 2.16 5.04 2.88 0.1231 2.7569 2.30%
160 2.88 6.72 3.84 0.1231 3.7169 2.32%
200 3.6 8.4 4.8 0.1231 4.6769 2.34%
240 4.32 10.08 5.76 0.1231 5.6369 2.35%
280 5.04 11.76 6.72 0.1231 6.5969 2.36%

What happens if fuel doubles to 1.9786/liter?

If the average fuel price increased by $0.9893/liter to 1.9786 then their fuel surcharge increases to 21.6%

The fuel portion of pickup cost goes from $1.2181/service call to 2.4362/service call an increase of $1.2181/pickup

Service price Current Fuel surcharge 1.80% New Fuel surcharge 21.6% Increased Revenue Increased cost New Margin Percent increase  in Profit
40 0.72 8.64 7.92 1.2181 6.7019 16.75%
80 1.44 17.28 15.84 1.2181 14.6219 18.28%
120 2.16 25.92 23.76 1.2181 22.5419 18.78%
160 2.88 34.56 31.68 1.2181 30.4619 19.04%
200 3.6 43.2 39.6 1.2181 38.3819 19.19%
240 4.32 51.84 47.52 1.2181 46.3019 19.29%
280 5.04 60.48 55.44 1.2181 54.2219 19.36%


Clearly some people are not crying when the price of fuel goes up!

What else did we find?

We looked at the list of items that our competitors we claiming were eligible for fuel surcharges here are some of them

Searching for Files in Boxes
Witness Shred – the fee to allow you to watch the shredding … Seriously
Misc Expenses
Container Rentals
Waiting Time
Additional People charges – the additional charge to send more than one person
Storage Containers

We also found that the fuel surcharges went on to bills the month that fuel prices went up and come off the bills significantly slower when prices were falling.

Conclusions

Prices for fuel are an important part of the costs of providing any service that relies on transportation, but they are a relatively small portion of the costs of providing quality Storage and Shredding services.  There is no question that the cost of providing service goes up when fuel cost, labour costs, the cost of repairing trucks, storage costs or any of the hundreds of input costs rise.  The sum of these price increases are included in the CPI index and Phoenix modifies our prices yearly by the CPI Index as a means to insure our margins are not eroded by inflation.

Our competitors are increasing their prices by the CPI index as well as the fuel surcharges. This effectively charges you twice for the fuel costs in addition to being massively excessive to cover the real costs.

We also conclude that if your profit increases as the price of fuel increases you have decreased incentive to enact the kind or changes necessary to reduce your carbon foot print.

You now have the information necessary to fight against unfair charges on your shredding and storage bills, of course we would prefer to be the provider of your shredding and records storage services.

If you want help in improving your service and getting your costs under control give us a call at
(204) 222-5096

About Phoenix Recycling Inc.

Phoenix Recycling was started in 1991 by Kristjan Backman to provide recycling and shredding solutions to companies in Winnipeg.  We have grown to be the largest supplier of shredding services in Manitoba We collect, shred, and recycle over 800 tons per month of material from over 1400 businesses.  We are the Consumers’ Choice Award winner for business Excellence for the years 2007-2010, and we are the only company in Winnipeg NAID AAA certified for both On-site and Off-site destruction of business records.

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76 Hoka Street
Winnipeg, MB
R2C 3N2

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Phone: (204) 222-5096
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Please contact us if you need anything.
Email: karen@phoenixrecycling.ca

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