The BFR master maintains freight rates for every single lane along with the unit price, accepted Vehicle types, SLAs, and so. In order to pick the fuel rate and unit for every contract, maintenance of a proper Base Fuel Rate is essential.


What is fuel pegging?

Fuel Rate changes occur periodically in line with supply and demand. With pegging, Pando enables shippers and transporters to add this to their contract and calculate base freight in line with change with fuel costs. Pando gets current fuel prices for major cities on a periodic(or scheduled) basis (monthly/quarterly). Similarly the days on which the fuel peg should be run is also fixed.

When does the fuel pegging run?
Shippers can configure the frequency of the pegging on a scheduled basis. For example, if a shippers as a part of their contract with the transporter, configure their fuel peg runs on specific days of the month—say the 10th and 20th— then the fuel pegging will run on those days of the month the freight rate will be updated to match the change in fuel prices. 


Where are the Fuel prices sourced from?

The fuel pegging is based on real-time fuel prices that are sourced from the following sources:


Cities whose fuel rates are captured by Pando:
  • Chennai
  • Kolkata
  • Mumbai
  • Delhi
  • Hyderabad
  • Ahmedabad
  • Vadodara

Additionally, it also captures the national average.


Fuel pegging uses the following components:

Terms
Explanation
BR (Base Freight Rate or Base Rate)
The freight rate which has been agreed upon as a part of the contract
CFR (Current Fuel Rate)
The market rate at which fuel is priced currently
BFR (Base Fuel Rate)
The fuel rate which was agreed upon when the contract was signed
Threshold
 The percentage/value of price rise/drop post which the fuel pegging comes into effect.
Fuel Peg Factor
The agreed upon factor by which the base freight will be offset to account for rising or falling fuel prices 

 

If the difference between the current fuel rate (obtained) and the base fuel rate (in the contract) is greater/lesser than the change threshold set in the system, the current fuel rate is updated to the fuel component of the base rate (part of the Rate matrix). And the BFR value in the UI is updated with the current fuel rate(CFR) value.

It is important to note that Change Threshold is a qualifying criteria. Only when the change threshold value is exceeded, does the pegging calculation come into effect. The change threshold can be set in one of two ways:

  1. Percent value i.e, percent change in the fuel rate.

    Consider this, if the change threshold is set at 3% for diesel, whenever fuel price increases by 3%, fuel pegging will come into effect. For example, if the price of Diesel increases from INR 65 to 66, the change threshold will not be met as the increase is only 1.5%. However, once the fuel price crosses 67 rupees, fuel pegging will come into effect.

  1. Absolute Value i.e, absolute value change in the fuel rate.

    For example, if the change threshold is set at 2 rupees, whenever the price of fuel rises more than 2 from the current fuel rate, fuel pegging will come into effect. 


Once the contract is updated the validity automatically increases by 35 days (which can be configured accordingly in the system)

Fuel pegging can be implemented in one of two ways:

  1. Percentage (Adding fuel peg component to a portion of the freight rate)
  2. Absolute Number (Adding fuel peg directly to the entire BFR value)

 

  1. Percentage(Adding fuel peg component to a portion of the freight rate)

When the “Percentage” configuration is enabled, Fuel peg factor set by the client indicates the percentage of the freight rate which will be considered for pegging when there is change in fuel rate.


Formula:

New Base Rate = [Base rate * fuel peg factor* (CFR/BFR)] + [Base rate * (1- fuel peg factor)]



For example, if the peg factor is set at 0.4, then 40% of the Base Freight Rate will be updated with the Fuel rate multiplied by the peg factor and the ratio between the CFR and BFR and will be used to derive the new base rate.


With this formula, the Base rate gets updated proportionally with increasing or decreasing fuel price. Let’s understand this through the following scenarios:


  • Scenario 1: When Current Fuel Rate exceeds the change threshold

Base Fuel Rate (BFR)
Current Fuel Rate (CFR)
Change threshold set as
Fuel peg factor
Base rate in the rate matrix (contract)
66
68.5
2
0.4
1000
New Base Rate Calculation
1000*(68.5/66) (0.4) + 1000(1 - 0.4)
1015.15


How new Base Rate will be calculated: Since the difference between BFR and CFR exceeds the change threshold, a new base rate is calculated and base rate value in the UI is updated by BR (which is 1000) * Fuel Peg Factor (i.e 0.4) * CFR/BFR (i.e, 68.5/66) + BR (which is 1000) * remaining component (i.e  1- fuel peg)

New Base Rate: 1015.15

  • Scenario 2: When Base Fuel Rate does not exceed the change threshold

Base Fuel Rate (BFR)
Current Fuel Rate (CFR)
Change threshold set as
Fuel peg factor
Base rate in the rate matrix (contract)
65
66
2
0.4
1000
New Base Rate calculation
Since the difference between BFR and CFR is less than the change threshold the base rate remains the same as 1000 and BFR is not updated.


  • Scenario 3: When Current Fuel Rate drops below the Base Fuel Rate

Base Fuel Rate (BFR)
Current Fuel Rate (CFR)
Change threshold set as
Fuel peg factor
Base rate in the rate matrix (contract)
69
67
2
0.4
1000
New Base Rate calculation
1000*(67/69) (0.4) + 1000(0.6)
988.40


How new Base Rate will be calculated: Since the difference between BFR and CFR exceeds the change threshold new base rate is calculated and BFR value in the UI is updated by CFR

Since the difference between BFR and CFR exceeds the change threshold, a new base rate is calculated and base rate value in the UI is updated by BR (which is 1000) * Fuel Peg Factor (i.e 0.4) * CFR/BFR (i.e, 67/69) + BR (which is 1000) * remaining component (i.e  1- fuel peg)

New Base Rate: 988.40


  1. Absolute Number (Adding fuel peg directly to the entire BFR value)

When the ‘Absolute Number’ configuration is selected, the Fuel peg factor set by client is directly added to the base freight rate. 


Formula:

New Base Rate = Base rate + Fuel peg factor


For example, if the peg factor is set at 20, then the updated freight rate will be calculated by summing up the base freight rate with peg factor.


With this formula, the Base rate gets updated with increasing or decreasing fuel price. Let’s understand this through the following scenarios:


  • Scenario 1: When Current Fuel Rate exceeds the change threshold

Base Fuel Rate (BFR)
Current Fuel Rate (CFR)
Change threshold set as
Fuel peg factor
Base rate in the rate matrix (contract)
66
68.5
2
20
1000
New Base Rate Calculation
1000 + 20
1020


How new Base Rate will be calculated: Since the difference between BFR and CFR exceeds the change threshold, a new base rate is calculated and base rate value in the UI is updated by BR(which is 1000) + Fuel Peg Factor (which is 20)

New Base Rate: 1020

  • Scenario 2: When Base Fuel Rate does not exceed the change threshold

Base Fuel Rate (BFR)
Current Fuel Rate (CFR)
Change threshold set as
Fuel peg factor
Base rate in the rate matrix (contract)
65
66
2
20
1000
New Base Rate calculation
Since the difference between BFR and CFR is less than the change threshold the base rate remains the same as 1000 and BFR is not updated.


  • Scenario 3: When Current Fuel Rate drops below the Base Fuel Rate

Base Fuel Rate (BFR)
Current Fuel Rate (CFR)
Change threshold set as
Fuel peg factor
Base rate in the rate matrix (contract)
65
63
2
20
1000
New Base Rate calculation
1000 + (-20)
980


How new Base Rate will be calculated: Since the difference between BFR and CFR exceeds the change threshold, a new base rate is calculated and base rate value in the UI is updated by BR + (- Fuel Peg Factor).

Since the difference between BFR and CFR exceeds the change threshold, a new base rate is calculated and base rate value in the UI is updated by

BR(which is 1000) + ( - Fuel Peg Factor) (which is 20).

New Base Rate: 980



Impact of dedicated truck flow on Fuel Pegging

Requisites: ‘Dedicated truck flow’ should be enabled as a configuration


There are scenarios when a transporter liaises a few dedicated trucks to the shipper as a part of the contract. Under this contract, the shipper pays an agreed upon price to secure a few trucks. The transporter is liable to provide a minimum freight shipment guarantee (in rupees/dollars) every month under the contract. This is the minimum amount of business the shipper provides to the transporter. This rupee or dollar value can be impacted if the fuel prices rise or drop. To accommodate for the same, fuel pegging can be used to increase or decrease the minimum guarantee for a given month based on the market prices of the fuel.

For accounts which have dedicated truck flow enabled as a configuration, two additional fields will be enabled under Base Fuel Rate master— BFR Min Guarantee & BFR Per KM rate. 

For example, if the Minimum guarantee has been agreed upon as INR 100000/month for a truck, then when fuel prices increase, the minimum guarantee computation as a part of the monthly invoice cycle will be increased proportionally. This is the formula that will be used:

New Minimum Guarantee = [Current Minimum Guarantee cost * fuel peg factor* (CFR/BFR)] + [Current Minimum Guarantee cost  * (1- fuel peg factor)]


Both of these fields will be updated under the invoice created for the Dedicated truck.