Local trucking companies respond to rising diesel prices

Now that diesel fuel has hit that mark, he’s mostly surprised by the trucking companies that failed to prepare for the “storm.”

Stockton is vice president of maintenance and asset management for Con-way Truckload, formerly Contract Freighters Inc. of Joplin. San Mateo, Calif.-based Con-way Inc. acquired CFI for $750 million last August.

Stockton said Con-way adopted sustainable practices years ago to reduce fuel usage and greenhouse gas emissions while improving gas mileage. Dropping the maximum speed for tractors to 65 mph and installing wide-base tires has enabled Con-way to eke out another half mile for each gallon of diesel its trucks burn, Stockton said.

That’s 4.6 millions gallons of fuel saved in a year, and at an average of $3.65 a gallon, the savings translates to almost $16.9 million annually for Con-way.

“Those that can weather the storm will certainly be in a better position … to be the one left standing,” Stockton said.

Finding ways to cut fuel use is key, given that the American Trucking Association reports that a 1-cent increase in diesel prices costs the industry an additional $391 million a year.

In the past six weeks, however, the national average retail price of diesel has surged nearly 71 cents, soaring to $3.99 per gallon on March 24 – a new record high for the fifth week in a row. Diesel prices are highest on the West Coast at $4.06 per gallon and lowest on the Gulf Coast at $3.93 per gallon, according to ATA.

Tom Crawford, president and CEO of the Missouri Motor Carriers Association, said member companies hemorrhaging dollars for diesel are applying a tourniquet of sorts by improving fuel economy and renegotiating surcharges with shippers. Some firms are doubtful they’ll be able to rebound from the crisis, Crawford said.

“I can sense that on the other end of the phone when I’m talking to my members that there’s a level of stress, there’s a level of anxiety, and a level of, ‘How are we going to make it through this?’” he said. “We’ve been talking to the big guys, the small guys, everybody, and the comments are universal: They’re feeling it at the pump.”

Fuel surcharges in flux

Fuel surcharges have become a hallmark for trucking firms in today’s marketplace, where the cost of doing business is routinely passed on to consumers.

Surcharges are typically calculated either by the mile or as a percentage of a trucking company’s revenue and then tacked on to a shipper’s freight bill to offset fuel costs. The fees are tied to weekly average diesel prices released by the U.S. Energy Information Administration, which recently predicted the 2008 average price will reach $3.45 per gallon – a 20 percent increase from 2007.

Even in the best-case scenario, a trucking company will only recover 80 percent of increased fuel costs through surcharges, said Jim O’Neal, president of Springfield-based O&S Trucking.

“The thing that’s injuring our industry now is that 20 percent is a lot more per gallon than it used to be,” he said. “And there’s not much margin in this industry, so there are a lot of trucking companies in a critical situation regarding financial stability and survival.”

If the cost of diesel is $3.80 per gallon, for example, that’s $2.60 above the O&S base rate, O’Neal said. If a fuel surcharge captures 75 percent, that still leaves 65 cents per gallon the company must absorb, he said.

Two weeks ago, O&S responded to its owner-operators’ pleas for relief by increasing its fuel surcharge 1.5-cent per loaded mile and issuing a one-time $100 stipend to each driver. “They have to survive or we can’t survive,” O’Neal said.

And with more freight to ship than carriers available to move it, shippers have the upper hand right now. Crawford at Missouri Motor Carriers said he’s heard some shippers have refused to pay fuel surcharges unless trucking companies can guarantee 6.5 miles to the gallon, and O’Neal said O&S has dealt with similar power plays.

“In this downturn economy, shippers have leverage and they’ve exercised it, frankly,” O’Neal said. “And the surcharges that we are paid have been adjusted in what we would consider an unfavorable manner.”

Con-way was able to “mitigate and, in some instances, eliminate the adverse effect of rising fuel prices” via fuel-surcharge agreements with most of its customers, according to the company’s 2007 annual report. Con-way has capped its fuel surcharge at a fixed percentage in the past, yet a federal lawsuit filed last summer alleges that the company and other trucking firms conspired to fix fuel surcharges for “less-than-truckload” shipments. The suit – filed by a California-based farm equipment dealer – is pending in U.S. District Court in Atlanta.

Miles gained = money saved

Trucking companies are employing a number of innovative techniques to improve gas mileage and streamline the aerodynamics of their ungraceful rigs.

In 2004, Con-way began installing wide-base tires on its 2,700 tractors to gain roughly three-tenths of a mile per gallon, Stockton said. About a quarter of the company’s 8,100 trailers also have the extra-wide tires – an investment many trucking firms weren’t willing to make until recently.

“I get calls (about the tires) literally daily,” Stockton said. “My counterparts in the industry are asking, ‘Do they really work? Is it worth the investment?’ … They’re wishing now that they had done that three or four years ago.”

With wide-base tires, a typical long-haul truck could save more than 400 gallons of fuel per year and reduce greenhouse gas emissions by four or more metric tons annually, according to the Environmental Protection Agency SmartWay Transport Partnership. Both Con-way and O&S are SmartWay members.

O&S fuel manager Elisha Sawyer said data downloaded from each tractor’s electronic control module helps the company decide how to best improve gas mileage. Sometimes inefficiencies are handled through maintenance; other times drivers may need more instruction on shifting procedures, Sawyer said.

O’Neal said O&S is switching its fleet over to automatic transmissions to shore up shifting inconsistencies. About half of the 330 tractors have been converted, he said.

The company also has been able to reduce the amount of gas burned while trucks idle by installing auxiliary power units. Idling truck engines burn about a gallon of fuel each hour, O’Neal said, adding that trucking companies need a multipronged strategy for lowering fuel consumption and improving mileage.

“There’s not one panacea here,” O’Neal said.