Diesel pump prices hit truckers hard
URLMarch 27, 2003 Last updated 10:34 AM Mar. 27
For truck driver Tom Test, runaway diesel fuel prices have reached the speed of lunch.
Earlier this month, the Norfolk resident pulled into a Massachusetts truck stop for a quick bite and a fillup.
The cost of diesel, according to the sign out front, was $1.96 a gallon.
One burger and about half an hour later, he drove back around from the restaurant to the pumps.
The new price: $2.01.
It was the same . . . stuff they had 30 minutes ago,'' Test said. It made the hair on the back of my neck stand up.''
Diesel prices are up one-third in the past year -- an even sharper jump than gasoline -- due to costlier crude oil and instability in the Persian Gulf.
And the increase is pounding motor carriers, especially small owner-operators like Test, for whom fuel is the biggest single piece of operating costs.
You tighten your belt up and do the best you can,'' he said. But your bottom line just plummets.''
Around Hampton Roads, diesel now averages about $1.81 a gallon, according to AAA.
While that's off slightly from the $1.82 local record set two weeks ago, the price is 39 percent higher than last year at this time.
Nationwide, diesel prices are also off from the new average high of $1.77 reached earlier this month, although they are still up 30 percent from a year ago.
Prices on the East Coast typically run higher than the national average, which includes cheaper areas such as the Southeast, the Midwest and the Gulf Coast.
The recent prices are not adjusted for inflation; in current dollars, fuel costs were well over $2 per gallon in the early 1980s.
Analysts cite several factors for the increase.
A work stoppage in Venezuela in December and January crippled that country's production of crude oil, from which gasoline, diesel and other petroleum goods are made.
Although the strike ended Feb. 1, production by the No. 4 supplier of crude to the United States has not caught back up.
Civil unrest in Nigeria, the fifth-largest supplier of U.S. crude, has also reduced oil output.
As a result, domestic crude oil stocks are down more than one-sixth from a year ago, at 270.2 million barrels.
Predictably, unrest in the Middle East has also driven up prices.
While the weeklong interruption of oil from Iraq has created no supply problems yet, speculation by fuel traders drove up some crude prices as high as $38 a barrel this month -- more than half-again as high as a year earlier -- on fears that a protracted war could cut oil output in the region.
And an unusually cold winter meant more domestic refiners continued making fuel oils rather than changing over to producing gasoline or diesel.
The explanation offers little comfort to the trucking companies that need diesel to survive.
Fuel comprises up to 30 percent of operating expenses for trucking companies, according to American Trucking Associations, an Alexandria-based trade group. Diesel is the second-largest cost after labor.
The industry has paid more than $1 billion in additional fuel costs this year compared to the first quarter of 2002, ATA said.
With inflation under control, the impact on the price of goods is difficult to gauge. Outside of volatile food and energy costs, the consumer price index climbed just .1 percent in February, the federal government reported, capping the smallest 12-month gain in nearly four decades.
Nonetheless, for motor carriers, the sharp jolt in a major cost like fuel can be devastating.
The association estimates that every 10-cent increase in the price of diesel drives 1,000 motor carriers out of business.
And that only includes fleets with five trucks or more; thousands of smaller carriers are also jeopardized by rising prices.
The organization estimates that more than three-fourths of the nation's 600,000 trucking companies operate six or fewer vehicles.
``It's become a crisis,'' said ATA economist Diego Saltes.
Bigger trucking companies can buy fuel at higher volumes than individuals, for instance, and spread out fixed costs over numerous vehicles. The economies of scale allow them, they say, to scrape by with some profits.
Many can also charge more when their costs go up.
Bay West Transport in Chesapeake adjusts the rates for its 60-truck fleet daily, to stay current with the expense of the 20,000 or so gallons of diesel it burns each month.
The company's charge per mile is running about $1.30 now vs. about $1.10 late last year, with no business lost to date.
We had to do that,'' said owner Mason Bailey. This fuel thing is a great spike in our costs.''
The strategy doesn't always work.
Baltimore-based O.S.T. Trucking Co. Inc. has instituted a 9.5 percent surcharge to cover fuel.
That does not offset costs that have risen more than triple that rate in a year, however.
``We can recoup part of it, but not all of it,'' said Bill Mayes, manager of the company's Virginia Beach terminal.
For independent truck owner-operators, who have to cover their own costs from maintenance and insurance to fuel, the bite is even harder.
As the industry has become more corporate and independents have scrambled for work, many are hesitant to raise prices too much for fear of losing jobs. Profit margins are evaporating.
The ATA says many drivers are simply parking their trucks, and even putting them up for sale, because they are not generating the income to survive.
Test -- who hauls under contract for Ram Transport of Virginia Beach -- says that with a $1,000-a-month payment on his 1998 Freightliner, he cannot afford to stop driving.
A 12-cent-per-mile fuel surcharge levied by Ram and passed along to Test helps: With fuel economy of six miles per gallon in the truck, he's actually up about 3.5 cents a mile from a year ago, based on Norfolk prices.
But every time he fills up in a big city in the Midwest or Northeast, where diesel can be 20 cents a gallon higher, that advantage is gone.
Test admits he is resigned to waiting for the fuel price runup to ease.
You just have to ride the storm out,'' he said. That's all you can do.''
And the outlook is mixed. Crude prices continue to whipsaw hourly between $27 and more than $30 a barrel on war news.
Reach Michael Davis at 446-2599 or midavis@pilotonline.com