DIESEL FUEL COST SURGE DRIVES MANY TRUCKERS OFF THE ROAD

Robert Manor Tribune Staff Writer September 14, 2000 Trucking companies in the Chicago area and around the country say they are being pushed to the edge of bankruptcy by the rising cost of diesel fuel, up nearly a third from a year ago.

"It is devastating," said Fred Serpe, executive director of the Illinois Transportation Association, which represents the state's 14,000 trucking companies. "People are at risk of losing their businesses."

Diesel is selling for $1.70 a gallon or more in Chicago, and a bit less in other parts of the state. A year ago it was under $1.30.

The highest petroleum prices since the gulf war have propelled the price of diesel higher around the world, touching off riots by French truckers and mass protests in the United Kingdom.

There have been no disturbances in Illinois--only a bit of desperation.

Serpe said trucking, which employs roughly 1 million people in Illinois, is especially vulnerable to higher fuel prices now.

In an ultracompetitive industry, trucking firms typically earn a 2 percent profit on gross revenues--meaning there is little margin to cover higher costs.

"A company has to be very well run to survive in a normal economy," Serpe said.

The state legislature suspended the state's 5 percent fuel tax over the summer, when prices started rising. That lowered diesel prices in Illinois, but only for a time.

Now trucking companies are cutting costs and raising the prices they charge their customers to compensate for higher diesel costs.

"We are directing our drivers where to buy fuel," said Robert Stranczek, president of Harvey-based Cresco Lines Inc. "You can save 10 to 15 cents [a gallon] by buying fuel in Missouri."

A dime a gallon may not sound like much, but it translates into a savings of $30 in the cost of filling up a big rig's 300-gallon fuel tank.

To economize, Stranczek has cut back on equipment purchases. "We have stopped buying trucks and trailers," he said.

Stranczek's company operates 270 trucks, mostly hauling concrete, steel and other building materials to destinations on the East Coast.

The company has raised its prices by 6 to 8 percent, but Stranczek says many of his biggest customers are balking at paying more. And despite the higher prices and cost-cutting, Stranczek said he is not sure his business will show a profit this year.

Other trucking companies have been failing.

Research by A.G. Edwards & Sons in St. Louis indicates that trucking firm bankruptcies are on the rise.

In the last three months of 1999, 280 trucking companies failed nationwide. That rose to 620 in the first quarter of this year, and rose again to 745 in the second quarter.

Separately, truckmaker Navistar International Corp. said Wednesday it plans to lay off up to 500 production employees because of slow demand in the truck market, which the company attributed partly to high diesel fuel prices.

Several factors make it unlikely that the price of diesel will come down anytime soon.

First there is the price of petroleum. On Wednesday U.S. light crude oil was selling for $33.58 a gallon, after selling for as little as $10 last year.

"In addition to high crude oil prices, there is the approach of the upcoming winter heating season," said Jonathan Cogan, spokesman for the federal Energy Information Administration.

Refineries are rushing to produce heating oil, which is commonly used to heat homes and businesses in the northeastern U.S. Heating oil inventories are 35 percent below their level at this time last year, raising the threat of shortages this winter.

Cogan said high gasoline prices have also hurt diesel. In some parts of the country, refiners find it more profitable to produce gasoline than diesel.

The Organization of Petroleum Exporting Countries agreed last weekend to increase output of petroleum by 800,000 barrels a day. Some analysts say that agreement means little--OPEC nations were already producing above their stated quotas, so it is questionable how much additional oil will come to market.

Cogan said that even if OPEC does increase output, oil from its Middle East members will not reach the U.S. for several months.

"For the most part, the relief of lower crude oil prices probably won't have any immediate impact on diesel prices," Cogan said.

The Clinton administration is considering tapping the nation's Strategic Petroleum Reserve, an emergency reservoir of 571 million barrels of petroleum stored in caverns in Texas and Louisiana. It would take weeks for that petroleum to be refined and distributed, however.

Even OPEC and its friends say fuel prices will remain high indefinitely.

Luis Tellez, the oil minister for Mexico--a major exporter to the U.S.--said he sees prices remaining strong for some time to come.

"My impression is that prices will continue at a relatively high level for at least the next six months," Tellez told Reuters news service

http://www.chicago.tribune.com/business/businessnews/article/0,2669,SAV-0009140118,FF.html

-- Martin Thompson (mthom1927@aol.com), September 14, 2000