High fuel prices starting to hurt

High fuel prices starting to hurt

High fuel prices starting to hurt

Continued high diesel and gasoline prices are putting the squeeze on the bottom line on trucking and other industries that rely on vehicles to conduct their business, though so far most are managing those costs well enough to stay profitable.

“Fuel expense, after considering fuel surcharge collections and the cost impact of owner-operator fuel reimbursements and lower miles per gallon due to the new truck engines, had a one-cent negative impact on our earnings per share in first quarter of 2005 compared to the first quarter of 2004,” said Clarence Werner, chairman, CEO & president of Omaha, NE-based truckload carrier Werner Enterprises. “However, the strength of our fuel surcharge programs helped to limit the impact on our first-quarter earnings.”

He said fuel prices in the first eighteen days of April averaged 55 cents a gallon or 49% higher than average fuel prices in the second quarter last year and, assuming fuel prices remain at today’s levels through the remainder of second quarter this year, the negative earnings impact could total two to three cents per share.

Patrick Quinn, co-chairman of Chattanooga, TN-based truckload carrier U.S. Xpress Enterprises, said his company’s first quarter results suffered largely due to higher fuel prices. “The higher fuel cost, net of the impact of fuel surcharges, negatively impacted quarter-over-quarter operating income by approximately $2.0 million, or seven cents per share,” he said.

Even non-trucking businesses are feeling the pain of a fuel price pinch. Consulting firm International Profit Associates (IPA) said its Small Business Research Board (SBRB) poll found that nearly two-thirds (64%) of the small businesses responding said they are feeling the impact of rising fuel costs, with only one-third of them saying they are passing on higher fuels costs to their customers.

“Some businesses are passing on at least part of the increase by adjusting the cost of service or materials or adding a specific fuel surcharge, but others say that tight competition prevents them from passing on the increases,” said Gregg Steinberg, IPA’s president. “Small business owners and managers are caught in an environment where costs are escalating and margins are being squeezed.”

Werner added that diesel prices, in particular, have been especially volatile over the last few months, making it more complex for carriers to manage the impact of higher fuel costs on their bottom line.

“In the fourth quarter last year, fuel prices were abnormally high in October but declined by 17% from October to December. In the first quarter of 2005, fuel prices were lower in January but climbed 22% from January to March,” he said. “By the end of the first quarter this year, fuel averaged 45 cents a gallon more or 44% higher in the first quarter of 2005 than in the first quarter of 2004, but were up just 2 cents per gallon compared to the fourth quarter last year.”

Yet carriers report that fuel surcharge programs are lessening the impact of higher fuel prices on their operating costs.

“Our recent efforts to improve the efficiency of our fuel surcharge program was well-timed as our price per gallon rose 30% in the first quarter -- yet only cost us an additional one cent per diluted share versus the first quarter of 2004,” explained Robert Powell, chairman & CEO of Van Buren, AR-based truckload operator USA Truck. “In fact, the combination of a better surcharge program, higher revenue per mile and improved fuel economy on our tractors actually enabled us to generate an improved operating margin in the area of fuel and fuel taxes.”

“Rapidly escalating fuel prices are a significant challenge for our industry and … we are working diligently with our customers to mitigate the negative impact of fuel prices,” said chairman & CEO Kevin Knight of Phoenix-based Knight Transportation. “In the first quarter, we increased fuel surcharge billings by 173% compared with the same quarter last year. These efforts helped us limit the negative impact of fuel prices.”

TAGS: Operations
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