Many trucking companies have reported an unwanted milestone. Fuel now accounts for about one-quarter of truckers' operating costs — surpassing labor — and is now the number one operating expense.
With the nationwide price of diesel orbiting $4 a gallon, companies have taken drastic steps to help lower their fuel consumption. Con-way, for example, has installed governors on its less-than-truckload fleet to cut the maximum speed from 65 to 62 mph. This move alone could save the carrier more than 3 million gal. annually, company officials say. Drivers at many other carriers are paying extra attention to route planning, idling times and even how smoothly they hit the accelerator and brake pedals.
As the price of fuel began a steady ascent several years ago, carriers were able to offset the cost with surcharges. However, truckers are finding it increasingly difficult to pass through these additional charges in the face of decreasing freight loads. Indeed, some smaller truckload fleets and many owner-operators have either gone out of business or put their trucks on blocks until freight returns at a price that makes hauling worthwhile.
Mitigating the high cost of fuel at the carrier level has limits, and industry stakeholders now have turned their attention to Washington, asking officials to help lower the price of diesel. In a letter to President George Bush, American Trucking Assns. president and CEO Bill Graves asked the President to release oil from the Strategic Petroleum Reserve. In his opinion, the oil market is no longer operating on fundamentals, and the market is being skewed by hedge funds driving up the price of crude based on speculation. “We need something to break that chain, and a SPR release could do it,” stated Graves.”
In recent Senate testimony, Chief Economist Jeffrey Harris of the U.S. Commodity Futures Trading Commission, refuted Graves: “…we have closely examined the relation between futures prices and positions of speculators in crude oil. … There is no evidence that position changes by speculators precede price changes for crude oil futures contracts.”
Harris added that basic fundamentals provide the best explanation for crude oil price increases. These factors include the low price of the dollar, strong demand from China and India, increased demand for diesel by European cars, and geopolitical tensions in oil-producing areas such as Iraq, Iran, Venezuela, Nigeria and Turkey.
Graves, in letters to other government officials, also suggested an increase in weight limits for trucks that use auxiliary power units and for the Dept. of Justice to help states with price-gouging investigations.
In the end, the price of diesel hinges on supply and demand, according to economists at the Energy Policy Research Foundation, a think tank largely funded by oil companies. They peg the current high price to “a series of unfortunate events” over the last ten years that have limited supply, including unilateral contract renegotiations, nationalization of oil facilities, lack of investment by oil companies, restrictive access to resources because of war and civil strife, reduced excess production capacity among OPEC producers, and taxes that create uncertainty and constrain development of higher- cost exploration. In other words, less supply.
While tinkering with taxes, releasing oil from the strategic reserves and allowing heavier trucks might help lower diesel prices in the short term, the only long-term solution is to increase the supply and lower the demand — or find non-petroleum energy sources for trucks.
The idea is gaining currency even among adversaries. At a recent Capitol Hill grilling of oil company executives, Ed Markey (D-MA), Chairman of the House Select Committee on Energy Independence and Global Warming, suggested that the U.S. immediately tackle the energy issue with a program of the scale and urgency of the Manhattan Project or Apollo moon launch. This was one of the few options on which the oil companies and lawmakers agreed.