High Fuel Prices Have Uneven Impact

May 12, 2004
New York, NY— The high price of diesel fuel is affecting every company’s wallet, but the larger carriers may be better able to cope than smaller ones. The extent to which the steady rise in the price of diesel fuel is affecting carriers’ financial health depends primarily on whether or not they have fuel surcharges in place. At a Bear Stearns conference on transportation in New York City yesterday,

New York, NY— The high price of diesel fuel is affecting every company’s wallet, but the larger carriers may be better able to cope than smaller ones. The extent to which the steady rise in the price of diesel fuel is affecting carriers’ financial health depends primarily on whether or not they have fuel surcharges in place.

At a Bear Stearns conference on transportation in New York City yesterday, Gerald Detter, president and CEO of Con-Way Transportation, pointed out that most carriers do pass fuel price increases on to customers, thus mitigating the impact of recent price hikes.

But it’s often a different story for small and medium-size operations. According to Kirk Thompson, president and CEO of J.B. Hunt, “Some small and mid-size carriers don’t have a fuel surcharge…or don’t have a good one; they are at risk.”

Even some of the larger carriers say that surcharges don’t cover the extra cost completely. Steve Russell, chairman and CEO for the Celadon Group, said that while their fuel surcharge “did the job” in 2003, this year it’s only covering 75-80% of incremental increases in fuel prices.

Trucking companies that service the West Coast have been hit especially hard, since the price of diesel in that part of the country has gone through the roof. Some carriers, such as Swift Transportation, have already instituted what they’re calling a “West Coast” surcharge. U.S. Xpress Enterpises, will also implement a West Coast surcharge, which it plans to negotiate with customers, according to Patrick Quinn, president and co-chairman. Covenant Transport is currently working on a fuel surcharge formula for California.

But even the surcharges may not be enough to keep the rising price of fuel in the U.S. from hurting carriers. As Con-Way’s Detter observed, higher gasoline prices could impact trucking to the extent that “consumers’ spendable income goes into their fuel tanks.”

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