Central Express Trucking

11 Pages Posted: 30 May 2017 Last revised: 17 Aug 2018

See all articles by Marc L. Lipson

Marc L. Lipson

University of Virginia - Darden School of Business

Steve Munoz

affiliation not provided to SSRN

Abstract

The CEO of Central Express Trucking (CXT), was preoccupied as he drove to work one morning in late October 2013. Diesel fuel prices had been a constant concern at the trucking company he had started 22 years ago. Over the last decade, the steady rise in fuel prices had squeezed margins and dampened profits. Yet despite the existence of fuel surcharges in all of CXT's contracts, short-term fuel price fluctuations still drove fluctuations in profitability. On his mind that morning was a proposal from the newest member of his sales team to offer a contract to a customer (shipper) that did not include a fuel surcharge.

Excerpt

UVA-F-1768

Rev. Aug. 7 2018

Central Express Trucking

Tim Conner, the CEO of Central Express Trucking (CXT), was preoccupied as he drove to work one morning in late October 2013. Diesel fuel prices had been a constant concern at the trucking company he had started 22 years ago. Over the last decade, the steady rise in fuel prices had squeezed margins and dampened profits. Furthermore, despite the existence of fuel surcharges in all of CXT's contracts, short-term fuel price fluctuations still drove fluctuations in profitability. On his mind that morning was a proposal from the newest member of his sales team, Erika Svensen, to offer a contract to a customer (shipper) that did not include a fuel surcharge. She believed CXT could manage the associated risk with fuel price contracts at very reasonable prices and had put Conner in touch with Steve Munoz, a managing director in the consulting services division of California-based risk management company Woodside Advisory Group (Woodside).

Since its founding, CXT had followed standard industry practice and had in place agreements with its shippers that would adjust shipping charges based on changes in fuel prices. If fuel prices rose, for example, the invoice to the shipper would be adjusted upward based on an agreed-upon formula. Conner recognized that these fuel surcharge contracts did not fully insulate against fuel price fluctuations and, more importantly, simply passed the risk from carriers such as CXT to the shippers. While large shippers had been willing to bear that risk, smaller shippers were often uncomfortable with this arrangement and were beginning to express concern. Given the highly competitive trucking market and excess shipping capacity in the region at the time, firms like CXT were becoming ever more reliant on those smaller shippers.

Svensen had argued that shipping contracts without a fuel surcharge would be attractive to smaller shippers and might boost business. Conner had followed up with Munoz and thought he understood much more clearly how fuel contracts might benefit the company. Conner had set aside that October morning to review Svensen's proposal, explore the materials provided by Munoz, and make a final decision. While the proposal from Svensen was of modest size, Conner knew his decision that morning might set in motion significant changes in how CXT did business.

. . .

Keywords: fuel prices, trucking, fuel price fluctuations

Suggested Citation

Lipson, Marc Lars and Munoz, Steve, Central Express Trucking. Darden Case No. UVA-F-1768. Available at SSRN: https://ssrn.com/abstract=2974595

Marc Lars Lipson (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

Steve Munoz

affiliation not provided to SSRN

No Address Available

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