FastFloat offers support for the four most commonly used Fuel Policy structures in the European market.
Benchmark Policy
Benchmark policies (sometimes called ‘reference price’ policies) are the most common in the European market and typically the simplest to setup and administer
Core principle they operate on
A Fuel Price Index is chosen that ties to the country the shipments will be taking place in (or a pan-European index chosen in the case of pan-European shipments)
‘Benchmark’ fuel price agreed prior to the start of the contract
This is typically the fuel price for the period immediately before negotiations commence (e.g. quarterly average for Q1 2022 if negotiations commence in May 2022) or the average for the prior year
Assumed ‘Fuel Share %’ set, which is the proportion of the total shipment price that is assumed to be related to fuel at the benchmark price
These range from 12-35% depending on the distance, truck type and nature of the transport
See [choosing the right fuel share %] for further details on setting a fair Fuel Share %
The policy creator then determines the update frequency and how ‘current fuel price’ is determined, choosing -
How frequently the adjustments will be updated (weekly, monthly, quarterly)
The ‘lag period’, which determines how far to look back for Fuel Price
Typically this would be the price from the prior period or two periods prior, to ensure fuel price data is available
The ‘comparison window’, which determines whether a single periods fuel price is used (e.g. May 2022) or the average of multiple periods (e.g. April 2022-May 2022 average)
Assuming no additional parameters included, the calculation for the adjustment for a shipment then takes the form of
Reference table
Reference Table (sometimes called ‘adjustment table’) policies are the second most common fuel policy type in the European market
They work by creating a three column table,
From Fuel Price
To Fuel Price
% Adjustment to apply
Many of the same parameters used in the Benchmark Price policy are required
A Fuel Price Index is chosen that ties to the country the shipments will be taking place in (or a pan-European index chosen in the case of pan-European shipments)
Baseline fuel price range agreed as the ‘no adjustment’ fuel rate
This is typically the fuel price for the period immediately before negotiations commence (e.g. quarterly average for Q1 2022 if negotiations commence in May 2022) or the average for the prior year
If this was 1.55, then ‘no adjustment range’ may be set as 1.5-1.6
The policy creator then determines the update frequency and how ‘current fuel price’ is determined, choosing -
How frequently the adjustments will be updated (weekly, monthly, quarterly)
The ‘lag period’, which determines how far to look back for Fuel Price
Typically this would be the price from the prior period or two periods prior, to ensure fuel price data is available
The ‘comparison window’, which determines whether a single periods fuel price is used (e.g. May 2022) or the average of multiple periods (e.g. April 2022-May 2022 average)
To determine the adjustment for a shipment, you simply lookup where the ‘current fuel price’ appears in the table
Per KM / mile policies - consumption based
Per KM/mile policies (consumption based) work in a similar way to Benchmark Price policies, but rather than setting an assumed ‘fuel share percentage’, they try to estimate the specific cost change for a shipment based on the distance of the shipment and the expected fuel consumption rates of the vehicle
Core principle they operate on
A Fuel Price Index is chosen that ties to the country the shipments will be taking place in (or a pan-European index chosen in the case of pan-European shipments)
‘Benchmark’ fuel price agreed prior to the start of the contract
This is typically the fuel price for the period immediately before negotiations commence (e.g. quarterly average for Q1 2022 if negotiations commence in May 2022) or the average for the prior year
A fuel consumption level for the truck types being used for the transportation
This is expressed in the system as ‘litres per km’ or ‘litres per mile’
To convert a ‘km per litre’ or ‘miles per litre’ figure, it is simply 1/this figure
i.e. 0.25 litres per km = 1 / 4 litres per km
Multiple truck types with different consumption levels can be chosen
The policy creator then determines the update frequency and how ‘current fuel price’ is determined, choosing -
How frequently the adjustments will be updated (weekly, monthly, quarterly)
The ‘lag period’, which determines how far to look back for Fuel Price
Typically this would be the price from the prior period or two periods prior, to ensure fuel price data is available
The ‘comparison window’, which determines whether a single periods fuel price is used (e.g. May 2022) or the average of multiple periods (e.g. April 2022-May 2022 average)
Assuming no additional parameters included, an adjustment per km or per mile is then calculated
To get to the final monetary adjustment for a shipment, you multiply the official distance for the shipment
Per KM / mile policies - cost based
Per KM/mile policies (cost based) work in a similar way to Benchmark Price policies, but rather than setting an assumed ‘fuel share percentage’, they try to estimate the specific cost change for a shipment based on the distance of the shipment and a ‘benchmark’ fuel cost per km, set at the time of the contract
Core principle they operate on
A Fuel Price Index is chosen that ties to the country the shipments will be taking place in (or a pan-European index chosen in the case of pan-European shipments)
‘Benchmark’ fuel price agreed prior to the start of the contract
This is typically the fuel price for the period immediately before negotiations commence (e.g. quarterly average for Q1 2022 if negotiations commence in May 2022) or the average for the prior year
A fuel cost per km, set at the time of the contract being created
This is expressed in the system as ‘cost per km’ or ‘cost per mile’
Multiple truck types with different costs per km / mile levels can be chosen
The policy creator then determines the update frequency and how ‘current fuel price’ is determined, choosing -
How frequently the adjustments will be updated (weekly, monthly, quarterly)
The ‘lag period’, which determines how far to look back for Fuel Price
Typically this would be the price from the prior period or two periods prior, to ensure fuel price data is available
The ‘comparison window’, which determines whether a single periods fuel price is used (e.g. May 2022) or the average of multiple periods (e.g. April 2022-May 2022 average)
Assuming no additional parameters included, an adjustment per km or per mile is then calculated
To get to the final monetary adjustment for a shipment, you multiply the adjustment per km or mile by the official distance for the shipment
Pros and Cons
Benchmark price
pros | cons |
Most common policy type - industry standard | Fuel share %’s typically differ significantly for different transport distances |
Least complex setup (number of parameters) |
Reference table
Pros | Cons |
Simpler table rather than formula to look at for the suppliers | Step rather than continuous change, so very minor changes in fuel price can shift Fuel Policy adjustments between steps |
Creates when fuel price goes out of range of the table (seen in both 2022 and 2020) |
Per km/mile policies
Pros | Cons |
Theoretically more accurately reflect the actual fuel cost changes for suppliers | Higher complexity, as need distance of each transport to verify correct adjustment |
Requires agreement on fuel consumption rates |
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