What do these three things have in common?
They are all products used by trucking companies in an effort to help reduce fuel costs.
It’s no stranger that fuel prices are rising with the price of diesel ranking in at a national average of nearly $4.15/gallon. Compare that to two years ago when diesel cost $2.99/gallon.
When looking at the price of gasoline vs. the price of diesel, consumers may be glad they don’t drive a truck. But diesel costs have not always been higher than gasoline. In fact, “diesel has historically been lower than that of gasoline” (hard to believe when looking at the last few years) but, as the Florida Trucking Association explains, diesel is also “taxed by the federal government at a rate 25 percent higher than gasoline.” 1
Transitioning into the trucking industry, this increasing cost of fuel spells T-R-O-U-B-L-E, especially for small carriers.
According to the American Trucking Associations, nearly 97% of trucking companies in the U.S. operate with fewer than 20 trucks with almost 90% of them servicing six or fewer. 1 With the rising costs of doing business, (equipment costs-new trucks average about $125,000 while more environmentally friendly engines “have gone up $15,000 to $20,000,” healthcare costs, fuel costs…etc.), along with stricter regulations, and driver shortage/capacity problems, these companies are being forced to shut down.
Let’s take a look at the facts. Two years ago, when diesel was at $2.80/gallon, nearly 700 trucking companies went out of business. Two years prior to that, when diesel costs $3.50/gallon, almost 1,000 carriers closed. 1 Fast forward to the present day when diesel prices cost even more. How many carriers will battle out increasing costs and how many will fail this year?
In order to cut back on fuel costs and prevent closure, carriers are being more selective on what lanes/customers they transport for, many of them turning down smaller accounts that they find to be non-profitable. As one company operating its own fleet notes, “We can’t afford to pay drivers, keep the trucks on the road and pay for gas too for some of the smaller accounts — it’s just cost prohibitive.” 2
Other carriers are increasing fuel surcharges to tackle diesel costs, which prevents them from raising freight rates due to diesel prices. Without these fees, a carrier would be forced to increase freight rates to make a profit, competing with bottom-feeder carriers.
Increasing in popularity/practice in the late 1990s, fuel surcharges have been used by carriers, allowing “the hauler to be reimbursed for excessive fuel costs incurred in the performance of hauling freight from one point to another.” 3
There are different methods carriers use in determining the fuel surcharge of their customers. One is based on the cost per mile, which is generally classified as 5-6 miles/gallon (the typical mileage of an older truck), whereas newer models can get over 7 miles/gallon. 4 Another calculation method relies taking a percentage of the linehaul rate, which can vary depending on whether the load is an LTL or Truckload shipment.
But, as the American Trucking Association’s Bob Costello explains, “some common carriers may have as many as 100 different fee structures,” depending on the customer, shipment, and other factors. 4 And guess who these fees, in return, trickle down to? You guessed it, the consumer.
Despite fuel surcharges, many carriers are taking measures to become more fuel efficient. These include speed control, skirting on trailers (which slipstreams the trailer and reduces drag created by rushing air, increasing fuel efficiency by 4-7%), cruise control (which has a .3% fuel efficiency gain), progressive shifting, hiring “good/qualified” drivers as opposed to “cowboys” who are constantly running fast, operating newer equipment, and installing technology such as GPS (which determines the best/most efficient route) and fuel economy gauges such as the ScanGaugeD (which monitors fuel usage changes).
How are you coping with increasing fuel prices? Have you taken any changes to account for this cost?
Understanding the history of diesel fuel costs can help you better understand the reasoning behind a carrier’s fuel surcharge. That’s why we are suggesting that you show the following graph, provided by the U.S. Energy Information Administration depicting diesel fuel costs from 1994 to the present day, to your transportation manager. As the graph displays, in March 1994, diesel cost just $1.107/gal with a low of $0.959/gal in February 1999. Today, it’s nearly $4.15/gal! How high do you see the price of gasoline/diesel going?
click to enlarge
Would you be willing to extend the delivery of a shipment 24 or 48 hours if it meant saving up to 25% off the cost? Working with carriers who can consolidate freight to maximize trailer space and the related fuel consumption could be an option that benefits you as a shipper – and a small side benefit to the environment. List your comments below.
1 http://www.theledger.com/article/20120326/NEWS/120329448
3 http://www.aitaonline.com/Info/General/Fuel%20Surcharges.html
4 http://www.palletenterprise.com/articledatabase/view.asp?articleID=3630
