Diesel Floater management in contractual relationships

26.06.2019

 

Close to a quarter of transportation costs are linked to diesel fuel consumption. Taking into consideration the fuel’s price fluctuations, and despite the evolution of tractor performance, diesel has continued to amount to between 20% - 28% of costs for articulated units and 14% - 19% for porters. That’s a cost well worth investigating.

In this post we’ll look at:

⦁    Which elements you should take into consideration during negotiations
⦁    What the current legislation requires 
⦁    Examples of how the calculations might work
⦁    How TenderEasy can help
 

Juggling various elements to mitigate costs

One way to negotiate diesel charges is to ensure they reflect a. your industry and b. the actual goods themselves. Both can prove invaluable leverage points during negotiations.

For Example, if your consignees are based in mountainous area, diesel share can be higher than usual, on the other hand a plastic bin manufacturer, with full trucks weighing in at 18 or 20 tons, could claim a lower diesel share bases.

Secondly, a monthly follow-up of the actual cost of diesel fuel per liter, based on an upstream-negotiated indicator, can prove a valuable tool for defining price. It ensures accuracy and legal compliance. 

Finally, it is important to note that if there are any European indicators averaging national costs relevant to your product, it can be fruitful to analyze your business by country.
 

Why plan, include and negotiate this Diesel Floater 

First of all, it is important to note that current regulations require carriers and shippers to do so. The rules were designed to protect carriers and give them some protection when it comes to negotiating with contractors.

In France, for example, the rules allow for limited negotiation in relation to the modalities of the deal, but they require both parties to agree. Not setting up an agreement in this way is punishable by a fine of up to €15,000 (as per Article L3242).

As long as these rules are followed, the loader and carrier are free of the indices, formulas, percentages used per article L3222-1 of the transport code. It’s worth mentioning that although the wording of the law has recently changed, it maintains the freedom of the parties. Indeed, the modalities must enable the party to cover the evolution of costs.

This means that in your negotiations there is no objection to the modalities being able to provide for reciprocity and, in the event that the price of diesel fuel would fall below the threshold of the base originally planned, to provide for a negative percentage. The regulations do not forbid you from preparing, with your providers, the tunnels of variation which neutralize the activation of the foot of invoice.

Just remember that even if the amount of the diesel floater is 0, it must appear on the freight bill.
 

The calculation mode?

In the vast majority of cases, two main principles apply.

1. Nothing was anticipated at the time of the award ceremony

In this case, the price is revisable by taking into account the evolution of the price of diesel between the delivery of the offer and the date of loading of the products in the absence of contractual stipulations. Article L3222-2 provides that the parties use a diesel fuel index issued by the CNR.

2. A functioning has been negotiated

In this case, the prices are revisable according to the terms and conditions set. 

Generally, and to facilitate budget forecasts and provisions, a percentage calculated on the basis of month m-1, sometimes m-2, is applied.

The most used calculation formula is the below:

(Index M-1 – reference index) x100x% share of diesel fuel =% Invoice footer
 Reference index

For example:

Negotiated transport price: €1000
Share of GO in cost : 25%
Benchmark: CNR, Cuve, monthly average January 2019:1,1324 €/L
Transport execution month: may 2019
Last known index: CNR, Cuve, monthly average April 2019:1,1869 €/l

Calculation:
(1,1869-1,1324)/1.1324 * 100 = 4.81% (change in the price of Diesel)
4.81% * 25% = 1.20% (invoice foot to apply)
 

How TenderEasy can help you manage the Diesel Floater 

The tendering process represents the perfect opportunity to update and standardize your providers. Through its platform, TenderEasy allows you to set a common rule, or even just by road, for all providers. The advantage is that you can directly compare all offers, as they have the same points of reference.

You can also choose to let the providers offer you a base as well as a share of personalized diesel fuel. Integrated in the budget calculation, you can also make an immediate comparative reading of the offers.

Finally, through the analysis of your past shipments, you can integrate a reference budget, updated with the new reference index, to have a direct comparative reading between your current budget and the various proposals of your existing prospects and providers.

Get in touch to hear more!

 

Written by
Alain-Fabrice Lavialle

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