Statement from the Board of Directors with Regards to the Deepening Fuel Crisis September 14, 2000

Robust economic growth in the industrialized world, combined with depleted stocks of home heating oil and diesel fuel are a recipe for higher fuel costs  notwithstanding recent pronouncements with regards to increased oil production. Earlier this week, the President of the Oil Producing and Exporting Countries (OPEC), Ali Rodriguez, warned of a crisis of great proportions because oil production capacity is reaching its limit. There are projections that world crude prices could hit US$40 per barrel in the coming months. This is the worst possible news. For the overall economy it increases the risk of a re-kindling of inflation after years of sacrifice and pain by Canadians in wrestling it to the ground. Particularly vulnerable are heavy users of diesel fuel, especially the trucking industry.

Diesel Fuel Costs in the Trucking Industry

Diesel fuel costs are generally the second largest component of motor carrier operating costs, after labour, and account for up to 30% of total operating costs depending on the type of operation. For small independent operators, fuel is the single largest component of operating costs. At current wholesale prices (tax included) it costs approximately $600 to fill one truck. (The cost at retail prices is closer as much as $700). On annual basis fuel costs per truck average $50,000 to $70,000. Every cent per litre increase in the rack price of diesel fuel reduces a trucking companys profit margin by half a per cent. Each dollar per barrel increase in crude oil is reflected in an approximate increase of 1 cent per litre in the rack price of diesel fuel. In Ontario, the current level of federal and provincial excise taxation on diesel fuel are: 4 cents per litre (federal) + 14.3 cents per litre (provincial). GST is creditable for trucking businesses. Combined the federal and provincial excise taxes on diesel fuel account for 42% of the rack price of diesel fuel. Trucking and the Ontario Economy

Trucks haul 90% of all consumer products and foodstuffs. Trucks haul 80% of Ontarios trade with the United States, which accounts for at least 40% of the provinces GDP. The entire Ontario commercial trucking industry accounts for about 200,000 direct Ontario jobs. Increases in the transportation component of operating costs eventually are eventually reflected in the final costs of goods produced/sold in Ontario. Current Situation

The rack price of diesel fuel in Ontario is now higher than it was in February and March 2000. At that time, escalating diesel fuel prices led to work stoppages and other forms of protest from some trucking independent operators and the retail price of diesel fuel surpassed that of gasoline for the first time ever. Rack price of diesel fuel increased by about 40% during the summer months which is traditionally a period of price moderation. The bellwether New York harbour price of crude oil has increased by about 287% since January 1999. Inventories of home heating oil are even lower than they were last year. Medium Term Outlook

Diesel fuel prices are likely to continue to come under increased upward pressure in the coming months as recently announced OPEC production targets are likely to have little moderating impact on crude oil prices and the cooler temperatures of Fall and Winter increase the demand for home heating oil. Moreover, The already thin profit margins of Ontario trucking companies will, as a result of the increased fuel costs, come under further downward pressure. There is little room for motor carriers to absorb further price increases. Independent trucking owner-operators are likely to feel particularly squeezed and some may be forced to turn their trucks in and exit the industry. Solutions

There is no silver bullet for resolving this crisis. However, the risks to the trucking industry, and the economy as a whole, are significant and all stakeholders will have a role to play in moderating the impact of a significant escalation in fuel prices: Carriers

Charge a fair price for your service. Know your costs. Be prepared to walk away from business that does not cover your costs. Seek fuel surcharges, general rate increases from your shippers. Keep your shippers informed on increases in your fuel and other costs on a regular basis. Take up the challenge of establishing company policies and targets for improved fuel efficiency and reduced idling. Monitor your fuel efficiency/mileage/speed on an ongoing basis. Communicate with your drivers to encourage them to maximize your fuel efficiency, eliminate idling. Make arrangements with your owner-operators for transferring fuel surcharges to them, and/or establish other mechanisms to ease the impact of escalating fuel prices on their small businesses. Be an intelligent fuel purchaser. Shippers

You are a key to the long-term solution to escalating fuel and other costs. Shippers that choose not to co-operate with their service providers should not expect to continue to receive the high level of service to which they have become accustomed. Be prepared to discuss fuel surcharges/rates with your carriers. Make partnership more than a buzzword. Work with your carrier to reduce waiting times. Maximize productivity of each shipment. Company Drivers & Owner-Operators

Slow down! Driving to the speed limits will maximize your fuel efficiency and save dollars. Reduce idling. Make sure your vehicle is properly maintained and is in good working order. Discuss disposition of fuel surcharges and fuel purchasing with your carriers. Investigate card lock privileges and prices. Get assistance to properly spec your new vehicle. How much horsepower do you really need? Oil Companies

Do you really want to risk slowing economic growth in North America? We all want to make a return on our investment. Ensure sufficient inventories of diesel fuel and home heating oil. Charge a fair price for your product. Communicate with your customers with regards to price changes/outlook. Governments

Take this matter seriously! Explore all avenues that could assist. Introduce temporary fuel tax reductions. Explore with industry, areas of potential productivity/efficiency gain (e.g., more productive vehicle configurations). Examine all prospective policies and regulations with regards to potential cost impact on industry. Examine incentives to stimulate purchase of new, more fuel efficient vehicles.

http://www.ontruck.org/news/news/2000/pnews_2000_09_17_203047_rt.php3

-- Martin Thompson (mthom1927@aol.com), September 29, 2000