FUEL ADJUSTMENT GUIDE

1) There is no "cover-all" formula.

2) There is however a correct "method" which requires that every operator who wishes to apply a surcharge successfully must determine the actual figures which apply in his/her operation.

3) Method

i) Determine your base buying price.

ii) Determine the percentage effect on the base price of a change of 1 penny per litre.

iii) Determine the percentage of your total costs or, if easier, your revenue, represented by diesel.

This can be complicated, because if you operate a mixed fleet or have several different types of work e.g. local and long distance, the percentage will be different.

You will have to decide what surcharge you can apply, and much will depend on the attitude of your customers. There are two basic options:

a) an average across your whole operation;

b) differentials, according to the various vehicle types and/or work commitments.

4) Example

i) Assume base buying price is 90 pence per litre, excluding VAT (see (iii) below).

ii) Every one penny change in price is therefore 1.11%.

iii)a) Your revenue for the last 3 months was £234,567

Your fuel cost for the last 3 months was £ 77,500

This was at an average buying price during that period

of 90 pence per litre, determined by analysing fuel invoices

Your fuel as a percentage of revenue was therefore 33%

It follows that, for every one penny per litre over and

above 90 pence you will require 1.11% x 33% = 0.37%

Therefore, if you are now paying 101 pence per litre,

you will be looking for (average) 0.37 x 11 = 4.1%

b) If it is demanded by your customers, and if you can manage to do it, you may need to split both your revenues and your fuel costs, as above, between types of vehicles.

NB All figures are illustrative only. They do not purport to represent actual figures.

If you need help with this, call BRIAN FISH at DFF International on 0117 968 1148