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What can be done about fuel prices?

March 19, 2008
The American Trucking Assns. (ATA) is projecting a record high diesel bill in 2008

The American Trucking Assns. (ATA) is projecting a record high diesel bill in 2008, estimating the trucking industry will spend about $135 billion on fuel based on current price forecasts. Nonetheless, experts indicate there is no simple solution to this predicament.

According to ATA, the $135 billion is a $22 billion increase over the $112.6 billion spent on diesel in 2007. The cost to fill fuel tanks on typical tractor trailers has increased 116%, about $615, in the past five years, the group added.

“The trucking industry is making great strides in its efforts to reduce overall fuel consumption. But an affordable supply of diesel fuel is imperative to keep our trucks moving,” said ATA president & CEO Bill Graves. “There is little to suggest that fuel prices will decline any time soon. Yet every day, ATA hears new stories from its members about how escalating fuel prices are hurting their businesses and affecting their livelihood.”

Graves added that fuel prices are currently at their highest prolonged point in history, and for some motor carriers, has surpassed labor as their largest expense, accounting for as much as 25% of total operating costs.

Trucks consume 39 billion gallons of diesel per year, and an annualized one-penny increase over an entire year costs the trucking industry $391 million, ATA reported.

ATA has suggested increased refining capacity and the exploration of Alaska’s Artic National Wildlife Refuge and Outer Continental Shelf as measures to increase diesel fuel supply.

Denton Cinquegrana, markets editor for the Oil Price Information Service (OPIS), told FleetOwner that increased refining is not as easy as it sounds. “There are two options for increasing capacity—building new refineries or adding on to existing ones,” he said. “Several projects are going on at the moment for adding on to existing refineries, but new refineries are very ‘pie in the sky.’ We haven’t built a new one since the 1970s.

“There’s only a finite amount of capacity out there, and we’re not using all of it—we’re currently at about 83% to 84% of capacity,” Cinquegrana added. “Even adding on to refineries you can run into trouble. Chevron [currently attempting to expand refineries in Richmond, CA] is running into resistance from local and environmental groups.”

“Short term it’s not much of a fix—situations are different, but from start to finish you’re looking at a couple years to add to capacity. It’s not an immediate impact,” he added.

According to ATA, trucks haul 70% of all freight tonnage in the U.S. and 80% of communities in the country receive goods solely by truck, which could increase the cost of food, retail, and manufactured goods to consumers.

“The price of fuel is going to affect carriers because of contracts with fuel surcharge caps, and when the spread becomes larger, they would like to pass [the increased fuel prices] on,” Satish Jindel, president of SJ Consulting, told FleetOwner. “It’s coming into play for new contracts, and they aren’t getting more in the base rate.”

The latest projections by the U.S. Energy Information Administration estimate the average price for diesel in 2008 at $3.45 is 20% higher than the 2007 average yet $0.52 less than its current average, which for the week of March 17th was $3.97 a gallon.

“The EIA tends to be very conservative with their forecasts,” Cinquegrana said. “But I think a lot of forecasts will be wrong this year.”

View more Fleet Owner news relating to idle reduction, fuel conservation, fuel economy and diesel fuel prices.

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