Diesel price surge drives new thinking

By Dave Hannon -- Purchasing, 3/19/2008 8:32:00 AM

With diesel prices continuing on an upward surge, truckers and industries that rely heavily on trucking and freight are re-thinking the way they operate. The U.S. Department of Energy’s weekly survey showed the national average for on-highway diesel prices is $3.97/gallon and in many regions of the country, prices are well over $4. That’s up significantly from the $3.82 diesel fuel price a week ago and the trucking industry is bearing the brunt of those prices. The American Trucking Associations says this week that truckers will spend $135 billion on fuel in 2008, based on current fuel price forecasts, a $22 billion increase over the $112.6 billion spent in 2007.

As a result, trucking firms and those that rely on trucking are making some unprecedented moves to try to stop the bleeding. In a recent Reuters interview, Rich Cilento, CEO of FuelQuest, says: "Not too many years ago, if you'd asked an executive at a transport company what their fuel management strategy was, the answer would have been 'I don't know.’ Now fuel has such an influence on a business, analysts and shareholders demand a sophisticated fuel strategy. Transport companies are creating fuel management teams, centralizing procurement and buying wholesale.”

Less-than-truckload (LTL) provider Con-way Freight announced recently that it has turned back the speed governors on the engines of its 8,400-tractor fleet to 62 MPH in a move to improve fuel conservation and reduce carbon emissions. Company officials said Con-way Freight consumes some 100 million gallons of diesel fuel a year.

And in an interview with the Rockford, Ill. Register Star Bob Blahnik, a truck driver with Total Logistic Control in Michigan, says truckers are often directed to a particular gas station to fill up while on the road. “They use a tracker to find the best price out there,” Blahnik says. “They tell us to turn our trucks off when getting out of them.” And as painful as the high fuel prices are to large trucking firms, smaller, independent truckers are feeling the pinch even more. Independent trucker Robert Griffith of Lebanon, Tenn. told the Associated Press this month that due to the increased fuel costs, “"I had to learn to live totally different. I'm a man who's trying to make a living for my family and I'm not succeeding." In an interview with the San Jose Mercury News, driver Julio Fornez said “There's no way truck drivers are making money right now. It's too expensive. We're in a crisis.”

And it’s not just truckers looking to optimize their miles. The Charlotte Observer this week reported that Ruddick Corp., which owns the Harris Teeter grocery store chain and has its own fleet of trucks, now packs its trucks full for deliveries from distribution centers and makes sure to reload them with recyclables or other items on return trips to optimize its backhauls and saves on gas. And those trends are likely to impact freight buyers soon. Wachovia analyst Justin Yagerman writes in a research note that “We currently expect high diesel prices coupled with tractor licensing and prepayments (for items such as insurance policies and tolls) to be a catalyst for truck capacity to exit the market during the first half of 2008.”

WHAT DO YOU THINK?
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