Rising fuel prices hammering trucking profits
Apr 26, 2004 12:30 PM
With diesel fuel nationwide averaging around 19.5 cents per gallon higher than this time last year, whatever profit could be made by the trucking industry is being wiped out by the higher prices, according to information from the South Carolina Trucking Association (SCTA). For truck fleets, fuel costs, typically 10-20 percent of expenses, are the second highest operating expense, second only to labor. Most fleets historically have attempted to pass increased fuel costs along to shippers in the form of a surcharge. But now, in the best cases, only a portion of those costs can be recovered because surcharges do not cover empty or out-of-route miles--and carriers can't keep up with rapid spikes or increases.
"This can wipe out whatever profit a carrier might be able to earn," says Rick Todd, SCTA president. "While most carriers are adjusting to persistently high diesel fuel costs, any rapid spike in prices is particularly detrimental to earnings. And as households see purchasing power chipped away by rising gasoline costs for passenger vehicles, our industry is seeing the possibility for less goods-hauling demand, which is bad for the economy and particularly bad for truckers."
As truckers move west across the United States, the price changes from a year earlier get significantly larger. For example, the East Coast average price is 7.4 cents higher than at this time last year, while on the West Coast, the average price is 50.6 cents higher. The West Coast region has been experiencing a diesel shortage due to continued refinery problems in California. Long haul carriers have to buy fuel as needed where they operate, so they are hit even harder.
Trucking industry financial analysts report that truckload carriers could lose up to five percent of expected earnings this year because of skyrocketing fuel prices. With the economic recovery, many trucking operations look to expand their fleets to take advantage of growing business opportunities. This time around it is particularly difficult because lenders are very particular about who they're willing to extend credit to after a three-year freight recession and record carrier bankruptcies. Insurance costs have also made it very difficult for marginal carriers to obtain or afford federally mandated truck liability insurance. Increasing fuel costs make it even more difficult for carriers looking to expand. Truckers have been trying to boost their profits by raising freight rates in the economic recovery, but carriers could wind up pumping some of that revenue gain back into fuel tanks, according to SCTA .
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