The EDGE

Calculation of fuel surcharges: FPInnovations can help you

The price of diesel fuel has risen dramatically in the last few months. As a result, FPInnovations has received numerous inquiries from its members regarding the fuel surcharges they pay their contractors. As the fuel surcharges have been quite large, they want to ensure they are being calculated fairly. The following are the most common questions we receive.

WHAT IS A FUEL SURCHARGE?

Fuel is an important component of transportation and harvesting costs. Contractor rates are calculated at a set diesel fuel price, normally below the market price. As the price at the pump fluctuates, compensation must be calculated to cover the difference between the set rate and the price that the contractor actually pays for fuel. There are many ways to determine the fuel surcharge.

For trucks

The two most common methods for calculating the fuel surcharge for trucks are as follows:

(1) Pay directly for the amount of fuel consumed in a given period based on an average fuel consumption (L/100 km), distance travelled in a given period, and the difference in fuel price between the actual price and price used in the original haul rate calculation.

Surcharge ($) = km travelled / 100 × L/100 km × (actual fuel price - fuel price in haul rate)

(2) Adjust the haul rate ($/t or $/m³) based on the percentage difference in fuel price between the actual price and price used in the haul rate, and the percentage of fuel cost in the total rate.

Adjusted rate ($/t) = (1 + % adjustment) × haul rate, where
% adjustment = (actual fuel price – fuel price in haul rate) / fuel price in haul rate × % of fuel cost in total haul cost

Although method (1) is simpler, it requires that you know the kilometres travelled by a truck in a given period. For log trucks, this is neither constant nor readily available.

For harvesting machines

Method (2) above can be used. However, the fuel consumption of a harvesting machine is highly dependent on the type of machine, forest stand, terrain, and weather conditions. As well, the percentage of fuel cost in the harvesting rate will fluctuate. It may be necessary to use tools such as FPInnovations’ ProCalc or spreadsheets to calculate the proper adjustment.

CAN I USE ONE EQUATION FOR THE FUEL SURCHARGE FOR ALL MY HAULS AND ONE FOR ALL MY HARVESTING?

You could, but that is not a good idea. For trucks, the percentage of fuel in the total cost varies greatly depending on the haul distance.

With one equation, you will end up paying far too much for short hauls and not nearly enough for long hauls. On shorter hauls, the truck will spend more time waiting and getting loaded or unloaded. When idling or stopped, the fuel consumption per hour is 10 percent or less than when travelling. Since other costs that make up a rate are mostly fixed and the cost of fuel will vary by haul distance, the percentage of fuel in the haul rate will vary by distance.

The percentage of fuel will also vary based on kilometres travelled on different classes of road, since fuel consumption on highways is lower, on a L/100 km basis, than on a primary resource road, which in turn is lower than on lower-class resource roads.

For harvesting machines, productivity and hourly fuel consumption will vary based on stand conditions, so the cost of fuel per cubic metre will vary from one stand to another. As for trucks, the other costs are mostly fixed on an hourly basis.

SO, I DON’T HAVE TO WORRY ABOUT THE HAUL OR HARVESTING RATE CHANGING DUE TO COSTS OTHER THAN FUEL?

Not entirely. With the disruptions in the markets and supply chain issues, the purchase cost of equipment, parts, and supplies have also been going up significantly. It is a good idea to periodically review your rates in times of economic turbulence, especially if your contractors need to replace new equipment.

CAN I JUST USE THE INFLATION RATE TO ADJUST THESE COSTS?

The Consumer Price Index (CPI) is the most common inflation reference. It may be adequate for adjusting your labour rate but it is not necessarily well adapted for the price of equipment, parts, and supplies. These costs are more closely linked to the price of commodities and supply chain issues. The best way to adjust is to periodically check with suppliers for the purchase price of equipment and supplies.

FOR TRUCKS, CAN I JUST USE A SERVICE THAT PROVIDES A FUEL INDEX?

There are numerous services that provide a fuel index that can be used to calculate a fuel surcharge, such as the Freight Carriers Association of Canada. These rates are generated for highway trucks in either less-than-truckload (LTL) or truckload (TL) operations. Trucks hauling raw forest products (logs or chips) have much higher fuel consumptions than regular highway trucks. Furthermore, the published rate adjustments will not necessarily be based on the same base fuel price on which your rates are based.

WHAT IF I NEED HELP?

For additional information, please contact Jan Michaelsen, Lead Scientist in FPInnovations’ Transportation and Infrastructure group at [email protected].

CWFC explains difference between marginal and unacceptable afforestation land for planting trees as part of Two Billion Tree Program

BY TONY KRYZANOWSKI

Acommon question asked by landowners interested in afforestation of hardwood or mixedwood plantations is: “Can I establish a plantation on marginally productive land?”

A better question, according to Derek Sidders, Program Manager, Technology Development and Transfer at the Canadian Wood Fibre Centre (CWFC), is whether the parcel of land under consideration for a plantation is ‘acceptable’ or ‘unacceptable’.

A few important considerations are discussed here as a follow-up to CWFC’s last Edge article entitled, “Strategic Forest Fringe Afforestation Fruitful Ground For Two Billion Tree Program.”

In that article, CWFC discussed the significant potential of strategic afforestation along Canada’s forest fringe, where trees historically have grown, as a contributor to the Federal Government’s Two Billion Tree Program.

This article will drill deeper and provide advice on what lands within this prime area and elsewhere are ‘acceptable’ for consideration of afforestation as part of the Two Billion Tree Program, because while a parcel of land may be marginal for producing an agricultural crop, it may be quite suitable for establishing an afforestation plantation of fast-growing hybrid and select poplar or aspen clonal trees.

“Marginally productive land has no problem producing trees, can easily qualify as a natural carbon sink, and should not be ignored if it meets certain criteria,” Sidders says.

Because the purpose of these plantations is to mimic a natural forest, the first question is whether your area is capable of growing trees. Are there natural tree stands in your area already? If so, then you can probably successfully grow a plantation by matching your soil type with a correct selection of clonal species that will flourish in your particular bio geo-climatic zone.

CWFC has soil and clonal reference charts available, as well as a wealth of research experience, verifying what species are productive within each zone across Canada.

“We use the agriculture land classification of Canada and other national databases,” says Sidders. “It gives you the broad classifications, but it also gives you a percentage of physical impediments like stoniness.”

He says that for an agricultural piece of land, it is important to have few physical impediments but the site may still be suitable for a tree plantation, “although it doesn’t mean that you want to be on top of bedrock either.”

Secondly, are there tolerant softwoods like white spruce or white pine in the understorey of naturally occurring stands in your area? If there are, then it is highly likely that an overstorey hardwood over softwood mixed stand would succeed and deliver multiple values and benefits.

Sidders explains what generally would qualify as an acceptable afforestation candidate. In many cases, it is just common sense. It should not be a wet site; it should be a moderately drained site. It should not be a stoney/gravelly site; it should be a site with moderate to fine soils, but not necessarily something as large as 100 hectares. It could be as small as one hectare in size.

In many cases, an acceptable site could simply be a parcel of land that is difficult to farm for an agricultural crop perhaps because of topography, access, irregular shape, surface disturbances and soil variability, but it may be perfectly suitable for a fast-growing tree plantation.

Other considerations making marginally productive lands unsuitable are physical impediments like steep slopes, heavy woody material and organics within the top 30 centimetres of the soil horizon itself, and large stones and bedrock.

More specifically, the soil depth should not be less than 25 centimetres, slope should not be greater than 30 to 34 percent, there should be minimal woody cover such as scrubs and other non-merchantable wood species present because there is existing underground woody material; and the parcel of land cannot consist of an existing old forest, again, because of the presence of below ground woody material. All other sites have potential.

However, as with agricultural crops, there are extra costs related to establishment and management of afforested plantations on marginal land versus moderate to highly productive sites that landowners must consider as they evaluate potential plantation sites.

Yet there are benefits to selecting a marginal site for afforestation because it could deliver other environmental dividends besides being a natural carbon sink, such as enhanced habitat and biodiversity and increased productivity by making extra resources and nutrients available to the soil, which have a positive impact on GHG reduction. The addition of adjacent land wind protection and air and water management are additional co-benefits.

For more information about site selection to establish a fast-growing hardwood or mixedwood afforestation plantation, contact Derek Sidders at [email protected] or Tim Keddy at [email protected].