Oil crisis at 18 months for nation's trucking industrygreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
Oil crisis at 18 months for nation's trucking industry
Dave Raiford Nashville Business Journal With its whisper-thin margins and cutthroat competition the trucking business is still feeling the brunt of the 18-month-long surge in fuel prices.
The 2 or 3 percent average margins in trucking don't leave much room for correction when a cost of doing business spikes and even less if more than one makes a surge upward, says Chris Burruss, president and CEO of the Tennessee Trucking Association.
"Typically we see spikes periodically," he says. "But this one has lasted 18 months."
In comparison to the last major fuel crunch in the 1970s, Burruss pegs the current round as more difficult for the industry.
While the argument can be made that taking inflation rates into account fuel actually costs less now than it did in the 1970s, Burruss points out the relatively unchanging rate structures companies have operated under for years.
"We've got companies operating on rates they were charging in the 1980s," Burruss says.
In the middle or on the small end of the market, smaller operators feel the pinch more acutely.
"It's the No. 2 cost," says Mike McFarlin, Nashville-based M&W Transportation's vice president of operations. Fuel prices have "gone up 25 to 30 percent and they've done it in a market where the economy is soft."
The American Trucking Association tracks the numbers and can draw a direct correlation between the price of fuel and general health of the trucking industry, says Diego Slatez, an economist for the organization.
"Failures have increased at the same pace that fuel rates have increased," he says.
In the third quarter of 1999, when the average price of crude oil was below $15 per barrel, about 350 trucking businesses failed, according to an ATA study.
The first quarter of 2000 saw that average barrel price jump to around $20, while the number of trucking businesses failures likewise jumped to 650.
When the average price per barrel topped $33 per barrel in the third quarter of 2000, the number of failed trucking companies jumped to around 1,300.
In fact, from the first quarter of 2000 through the first quarter of this year, there were about 4,900 company failures. In the preceding five quarters, there were about 1,500.
To ward off encroaching fuel costs, trucking companies are adding a surcharge to their rates to recoup fuel costs, but it's no cure-all for the oil-price ailment.
In fact, surcharges aren't the answer to the problem, says Joel Ferguson, president of Fine Line Carriers Inc.
"You only recoup about 80 to 85 percent of your fuel cost through a service charge," Ferguson says. There is no surcharge involved in "deadheading" -- moving an empty truck to and fro -- and the cost adds up.
For Ferguson and other small carriers, all they can hope for is that oil prices stop rising.
"I see it leveling off right now, at least that's what all of the carriers are hoping," he says.
-- Martin Thompson (email@example.com), June 26, 2001