Truckers:Victims of rising fuel prices

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Victims of rising fuel prices Source: The Journal Record Publication date: 2000-09-20

As the price of diesel fuel continues past a 23-week high, many trucking companies in Oklahoma are looking for a self-defense mechanism that will allow them to stay in business. If no relief is found soon, the days of small independent trucking companies may be numbered.

Already the cost of making a round-trip run from Oklahoma City to Los Angeles has doubled in the past year, while the cost of hauling the freight has remained virtually stationary.

"We're still hanging on until something gets better or we can get some relief," said Dale Brown, owner of Dale Brown Inc., a small truckload carrier that operates a dozen trucks. "I know of a few that are sitting it out, hoping to wait it out."

Nearly all the trucking companies surveyed said the 65-cent or so increase in diesel prices over the past year and a half is cutting deeply into their pockets -- and not many small companies have pockets that deep.

Most of the truckers looked longingly at the pre-1979 days, when the industry was regulated.

"Back then, all we had to do was go to the (Oklahoma) Corporation Commission or the federal government and ask for a tariff increase," said Jack Reeser, vice president of operations for Fox-Smythe Truck Lines of Oklahoma City. "Now, we can't do that.

"We can't raise our prices because of competition. The only choices we have is to continue losing money or to park our trucks and if we park them, we stand of good chance of not getting back the customers."

When deregulation came along, trucking companies were free to set whatever price they could get for hauling freight, usually the lowest the market would allow.

Now, with no government assistance, the trucking companies are calling "foul" and would like some sort of relief from the diesel price skyrocket that's shot up from a national average of less than $1 per gallon in January 1999 to $1.653 on Monday. That price, according to a Department of Energy survey, was up 2.4 cents from the previous week.

Although the $1.653 per gallon was a national average price, in some states and regions, the price was even higher. In California, the price is above $2 per gallon.

"It would help us a lot if there was a national energy policy," said David McCorkle, founder and vice president of McCorkle Truck Lines in Oklahoma City. McCorkle also is a vice president of the American Trucking Association and as such has an appointment today with Energy Secretary Bill Richardson.

"We're having all sorts of dialogue on this issue, but so far nothing's been done," McCorkle said.

Every trucking company in the United States is having difficulty with the diesel prices, McCorkle said, "to a varying degree."

"I understand the (large carriers) are not having as much problem as the smaller ones are," he said.

McCorkle Truck Lines was one of the more fortunate companies in that when the latest rounds of contracts were negotiated, the company threw in a clause that it would get a surcharge if the diesel price exceed $1.25 per gallon.

"We're not having any difficulty collecting that; I'd say that 95 percent of ours is collected," he said.

Other companies are not so fortunate.

Although they have tacked a 9.4-cent per mile surcharge onto the freight cost, it's purely a voluntary payment.

"If people don't want to pay that, they don't have to," said Jane Smythe, president of Fox-Smythe.

Neither she nor Reeser said how many of their customers pay the surcharge. Brown said that about 10 percent of his customers pay it.

But even those who do pay delay anywhere from two to four weeks, which means there's a cash flow problem.

Fox-Smythe has a mileage surcharge, while McCorkle has a percentage surcharge.

With rates so high, the surcharge is expected to increase this week to 10 percent.

"We expect to run into some customer resistance with that high of a surcharge," McCorkle said.

Simply increasing the cost of freight, or demanding that the surcharge be paid, wouldn't work, Reeser said.

"Most of these shippers have contracts with four, five or six carriers and if we insist this be in the contract, they'll agree with no complaint," Reeser said. "But then they'll just turn around and send all their freight with someone who doesn't tack on the surcharge. Then we wouldn't get any business at all. It's just a matter of competition."

Deciding on whether to run at a loss or shut down the trucks is a calculated risk, whichever way the company chooses, said George Tomek, executive director of the Oklahoma Trucking Association.

"There is no sure solution, especially going into winter when prices traditionally go up," he said. "It's a real roller-coaster ride for the trucking companies. We expect the higher prices to be here for some time."

Compounding the problem for companies that carry freight nationwide is that the big vendors, primarily the huge truck stops, have reduced the amount of credit available.

"It used to be that they would give us seven days to pay after our drivers bought fuel," Brown said. "Now it's three days. Besides that, they've cut our (credit) limit in half.

"Now, if they draft your bank account (for the money owed), if the money's not there, they shut down the trucks, regardless of where they are."

Some shippers, who voluntarily pay the surcharge, say they are passing the cost onto the retailer, who passes it on to the consumer.

That means that consumer prices soon will reflect the higher diesel prices.

But there's a deeper risk here, the truckers said.

Many independent owner/operators, who can't recoup their price increases, are merely parking their rigs and in many cases returning them to the bank. Already there's "more loads than there are trucks because of the driver shortage," and shutting down rigs could force delays and even shortages.

"I think that there will be a lot of things that you can't get on the shelves at any price," Brown said. "If we can't recover some of our costs, then it's foolish to continue operating. We can't continue running at a loss.

"When trucks shut down because of fuel prices, then you won't get things off the shelf at any price."

The ever-escalating prices have caused 17 state trucking associations to form a consortium to negotiate with major vendors, trying to cut a special discount.

"We have banded together to see if there is some way we can get our 4.5 million trucks," he said. "We are trying to find national vendors who are willing to bid on prices for diesel fuel."

What makes this situation rough on trucking companies is that diesel fuel accounts for the biggest single expense the company has.

Lacking any way to lower diesel prices or to increase the fuel efficiency of the big trucks, companies are looking for other ways to reduce costs.

The most obvious is to shut down the engines when the trucker is stopped for any length of time. In the past, the engines were seldom shut down completely, unless the trucker was stopped overnight.

"We can get by with that in the summer, but when winter gets here, we can't shut the engines down," Reeser said. "If we shut down the engines, the cab will get cold and the driver will freeze. We need to keep those engines running in the winter."

Most trucking companies have pared their overhead expenses to the bone and there's no room for any more cuts. The only options are to raise prices, facing stiff competition, or the shut down the rigs.

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=14074324&ID=cnniw&scategory=Transportation%3ACargo

-- Martin Thompson (mthom1927@aol.com), September 20, 2000

Answers

Oh, this situation reeks of coming disaster. When the independent truckers start talking about figuring some way to "stay in buisness," look out.

-- JackW (jpayne@webtv.net), September 20, 2000.

Shortage of drivers -- loads piling up -- these are more look outs.

-- RogerT (rogerT@c-zone.net), September 20, 2000.

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