Insights

Rivaling labor as a significant operating cost in the trucking industry are fuel costs. With the rising price of fuel over the past two years, trucking companies have had to seek ways to offset these increases through such means as fuel surcharge programs and fuel hedging. Because more shippers are reluctant to pay fuel surcharges, fuel hedging is becoming an increasingly popular method of curtailing the impact of rising fuel costs.

Fuel hedging is a tool used to stabilize fuel costs by paying a pre-determined price for future fuel purchases. In effect, it is a bet that future fuel prices will be higher in the future than current prices.

For accounting purposes, fuel hedging is considered a form of derivative and currently falls under Statement of Financial Accounting Standard No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, as amended (to be replaced with the FASB codification effective September 15, 2009). SFAS 133 is a complex accounting standard with stringent requirements, including the documentation of a company’s hedging strategy, analysis to qualify a commodity for hedge accounting and strict contemporaneous documentation that is required at the time each hedge is entered into by the company.

For further information regarding the accounting for fuel hedging, please contact a member of your service team.

Schneider Downs provides accounting, tax and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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