A good first step
Nov 1, 2005 12:00 PM, By Charles E Wilson
A GLOBAL crisis in transportation fuels is looming, according to a recent executive memorandum from The Heritage Foundation, a conservative think tank. Suppliers around the world face an increasingly difficult struggle to distribute the refined fuels that keep the global economy on the move.
The Heritage Foundation memorandum pointed out that rising “fuel costs represent an indirect tax that may seriously affect the economy, possibly even causing a global recession. Furthermore, leading industry experts believe that the global oil well is running dry.”
None of this should come as a surprise to anyone in the trucking industry. Fleets struggled under high fuel costs throughout 2005, and the situation shows no sign of improvement.
The American Trucking Associations (ATA) recently revised its fuel cost projections for 2005, estimating that the industry will spend a whopping $85 billion on fuel this year. This is $23 billion more than the trucking industry spent in 2004.
“Rapid escalation in the price of diesel fuel, like we've seen in 2005, is devastating the trucking industry and will result in failures, lower capital investment, and negative employment trends,” says Bill Graves, ATA president and chief executive officer. “The trucking industry is primarily a small-business industry with relatively slim profit margins.”
ATA officials point out that fuel accounts for 20% to 25% of operating costs, and the percentage could increase with the rollout of the ultra low sulfur diesel (ULSD) that will be mandated by the Environmental Protection Agency (EPA) starting in the second half of 2006.
Some estimates suggest that ULSD will command a premium of up to 50 cents a gallon. For fleets, this could mean additional annual fuel costs of around $110,000 per tractor. ATA officials add that motor carrier bankruptcies mirror fuel price increases.
Controlling transport fuel costs while ensuring reliable, uninterrupted supplies is one of the biggest challenges facing the US government. The Bush Administration took an important step toward that goal when the Energy Policy Act of 2005 was signed into law earlier this year. It was just a first step, though.
The first legislative effort of its kind in more than a decade, the Act outlines a national energy policy that emphasizes increased domestic production of existing energy products and promotes the development of new energy sources. A number of provisions in the Act will have a direct impact on the trucking industry.
It calls for increased domestic oil exploration and production, including development of areas that are currently off limits to leasing and drilling. The Act will make it easier to build new refineries, something that is badly needed in the United States.
The last new refinery in the United States was built in 1976. Red tape and other obstacles heaped on by the political left have made it virtually impossible to build new refineries. Over the past 10 years, the refining industry spent $47 billion not on new refineries but on upgrades to existing facilities to comply with federal environmental mandates. At least 800 permits, most of them federal, would be required in the licensing of a new refinery today.
Tax breaks and subsidies will help in the development of renewable energy sources, such as biodiesel. The Act provides $15 billion in federal funds for alternative and renewable fuels. It sets a target of 7.5 billion gallons in renewable transportation fuels by 2012.
Following Hurricanes Katrina and Rita, which extensively damaged some of the nation's largest refineries along the Gulf Coast, Congress began work on supplemental energy policy legislation. Provisions under consideration include significant reductions in boutique fuels and the opening of Alaska's Arctic National Wildlife Refuge to drilling for oil.
All of this suggests we're waking up to the energy crisis that threatens the trucking industry, but we still have a long way to go. It took years to get into this hole, and it will take years to get out.
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