Koch Supply & Trading, LP
Fuel Surcharge Exposure and Risk Management
Nick Dazzo (US) Pat Melia (US) Arian Fouquet (US) Olivier Raevel (EUR) Brian Carpani (EUR)
+1 212-319-4895 +1 212-759-8123 +1 316-828-3888 +41 22-737-4229 +41 22-737-4244
email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com
The STiNg OF Fuel SuRChARgeS
Over the past several years, freight carriers have
successfully passed fuel surcharges on to their customers.
Presently, most on-land and waterborne freight providers U.S. AVERAGE RETAIL DIESEL PRICE*
in North America, Latin America and Europe have $/gallon
implemented multi-tier rates based on their cost of fuel.
While surcharges vary among carriers and their customers,
the intent is the same: to transfer the burden of volatile fuel 3.50
costs from carrier to shipper. As a result, fuel surcharges
have become a significant variable expense for many 3.0
corporations whose primary business has little or nothing
to do with trading oil. The recent past has redefined market 2.50
volatility, and future pricing seems more unclear than ever.
Facing such uncertainty, manufacturers and others often
wish to replace the variability of unknown future fuel 1.50
prices with the predictability of a known fixed cost. Or, at
a minimum, purchase protection so that fuel surcharges 1.00
are capped at some level. However, transportation
companies generally have been unwilling to provide such 0.50
certainty to their customers.
There is an alternative. A significant number of 2004 2005 2006 2007 2008 2009 2010
companies have found that by entering into a financial
contract – on similar but opposing terms to their freight
surcharge – they can largely offset the cost variability.
RiSK MANAgeMeNT SOluTiONS
Koch Supply & Trading companies are leading This enables Koch Supply & Trading companies to
providers of such financial contracts and can offer offer competitive pricing on products that may not be
various forms of price protection to shippers, available among financial institutions.
potentially allowing them to effectively lock in
A long history of financial solutions – A Koch
forward surcharges at a given level; cap them at
company traded the first crude oil swap in history.
a particular level; or establish some other tailored
Our organization has been a pioneer in many aspects
solution. By replacing an unknown with a known
of the energy trading world, and Koch Supply &
value, the uncertainty of future cost structures
Trading companies continue to be leaders in physical
can be reduced and the impact of a sudden or
and financially settled energy contracts. Koch Supply
prolonged price rally can be mitigated.
& Trading companies were early entrants to the DOE
These solutions are customized, but most often surcharge business and can put that experience to
they are also based on highly conventional work for others.
indices. Most fuel surcharges in the U.S. are
Credit diversification – Unfortunately, the world has
tied to a national diesel fuel (or, in some cases,
seen significant corporate hardship over the past
gasoline) index published each Monday by the
few years. One lesson from this is the value of credit
U.S. Department of Energy’s Energy Information
diversification. Corporate risk managers hedging
Administration. This is why fuel surcharges are
freight surcharges may therefore want to consider
often referred to as “DOE surcharges,” or “EIA
the value of having at least one non-bank dealer
surcharges.” Fuel surcharges elsewhere in the
in their stable. Koch Supply & Trading companies
world also tend to be tied to national or regional
are privately owned and backed by solid long-term
retail diesel or gasoline price indices.
Freight carriers can use these solutions themselves
To learn more about freight surcharges and the risk-
to offer their clients a similar hedge against future
mitigation solutions Koch Supply & Trading companies
surcharges. This capability would provide their
may be able to offer, please contact:
customers with shipping cost certainty and eliminate
the need for separate agreements. In this lean Nick Dazzo (US) Olivier Raevel (EUR)
environment, such a program can be a significant +1 212-319-4895 +41 22-737-4229
Pat Melia (US) Brian Carpani (EUR)
+1 212-759-8123 +41 22-737-4244
Why KOCh SuPPly & TRADiNg? firstname.lastname@example.org email@example.com
Competitive pricing – Our affiliated companies own Arian Fouquet (US)
refineries and other physical assets and thus are +1 316-828-3888
naturally long refined products such as diesel fuel.