Escalation designer
Build a diesel floater, read the clause it produces, then see what it would have paid against the weekly pump history — next to what a clause indexed to the headline contract index would have paid over the same window.
The clause
FUEL ADJUSTMENT (DIESEL FLOATER) 1. Base Fuel Price. The parties agree a Base Fuel Price of EUR 1.649 per litre, being the Germany pump price including tax for 2024-07, as published in the Reference Index. 2. Reference Index. EU Weekly Oil Bulletin, national diesel including tax. Where the index is published weekly, the Reference Price for a review period is the arithmetic mean of the weekly prints in the preceding calendar month. 3. Fuel Share. The parties agree that fuel represents 27.0% of the contracted rate. 4. Review. Rates are reviewed monthly, effective the first day of the following month. 5. Adjustment. At each review the contracted rate is adjusted by: (Reference Price − Base Fuel Price) / Base Fuel Price × Fuel Share. The adjustment applies only where the Reference Price has moved by 5.0% or more, in either direction, against the Base Fuel Price. Movements inside that threshold are absorbed by the Carrier. 6. Scope. This clause adjusts for fuel only. No other cost movement, and no movement in any composite freight index, gives rise to an adjustment under this clause. 7. Transparency. The Carrier shall state the Reference Price and the resulting adjustment on each invoice, with the index publication date.
Base Fuel Price is the observed monthly mean of the weekly pump survey for the signature month. Fuel share is your assumption, not a measurement.
What the two clauses cost
The gap between them is 0.49 points, in favour of the naive clause over this particular window. That is the honest result for these settings: the floater passes fuel through faster, and when diesel runs ahead of the composite index the buyer pays more under the floater. Change the signature month or the trigger to see the window where it reverses.
Reference price at the last review
- Base Fuel Price 1.649 EUR/l (Jul 24), reference 2.072 EUR/l (Jul 26).
- Movement 25.67% against a ±5% trigger, at a 27.0% fuel share.
Back-test — cumulative rate adjustment
- Designed diesel floaterobserved
- Naive headline-indexed clauseobserved
Both lines are cumulative percentage adjustments to the same contracted rate, on one axis, so no second scale is needed. The floater tracks pump diesel at the agreed share; the naive line tracks the whole headline road contract index. Where the ETS2 toggle is on, the forward segment is drawn as an open orange ring because it is an assumption about a scheme, not an observed price.
Why this is the argument
- A floater reimburses fuel and nothing else. A clause indexed to a composite contract index reimburses fuel again inside that composite, plus every other carrier cost the buyer never agreed to underwrite.
- The trigger threshold is not a saving, it is a smoothing device: it delays adjustment in both directions and keeps small movements out of the invoice run.
- Diesel here is the pump price including tax, monthly mean of the weekly survey. Spot freight appears nowhere in this product, including in the back-test.