Rising fuel prices force transportation surcharges

Rising prices at the fuel pump are forcing area businesses to add fuel surcharges to client orders. That reaction is turning heads on the receiving end.

"It's impacting every business with a lot of wheels on the road," said George Innes, general manager of Springfield Ready Mix Co. "Many of the companies that we purchase materials from have an extra surcharge."

Those charges may create a trickle down effect: "It may force us to do it," Innes said.

Springfield Ready-Mix is not the only concrete company to consider passing the extra costs on to customers. Conco Companies is studying last month's expenditures, according to Dave Roling, a member of Conco's upper management. Both firms report surcharges ranging from 2 percent to 5 percent of invoices.

Pain at the pump

Fuel surcharges are the trucking industry's way of absorbing higher-than-normal prices at the pump. According to area trucking officials, the practice has been common for years in their industry, which shoulders the burden of spiking gasoline prices. But those executives say current increases are the highest and most abrupt in recent memory.

"The problem for trucking is that you can't respond quickly enough to get your surcharges in line to cover your cost of fuel," said Jim O'Neal, president and CEO of O&S Trucking.

While diesel fuel prices climbed slowly last year increasing by about 30 cents per gallon during the year the market has been more vicious in 2003. In just two months diesel prices have climbed 25 cents per gallon. National averages peaked last week at $1.75 per gallon, up from $1.17 one year ago, according to the Energy Information Administration, a division of the U.S. Department of Energy. Diesel fuel started the year at about $1.50 per gallon.

The national average for diesel fuel since 1994 when the EIA began tracking diesel prices has been $1.20 per gallon. Trucking companies have set that price as the benchmark.

"If fuel gets beyond a certain price, our rates have to reflect it," O'Neal said. "The typical and accepted way it's done is through a fuel surcharge."

According to the EIA, a typical fuel surcharge scale is a 1 percent surcharge for every 6-cent increase in diesel pricing above the baseline of $1.20.

Springfield-based Prime Inc. began instituting fuel surcharges in 1999. Since then, the company's drivers have recouped $63.6 million in fuel surcharges, according to Prime spokesperson John Hancock. Just last week Prime paid its drivers $704,000 from surcharge revenues.

"Without that, they would have just been killed," Hancock said, because Prime drivers are independent contractors who pay for their own fuel. "If you don't have those mechanisms in place, you're in big trouble."

According to American Trucking Associations Chief Economist Bob Costello, every 10-cent increase at the pump results in 1,000 truck-company closings.

"That's the thing that put Erickson out of business," Innes said, referring to the recent closing of Springfield's Erickson Transport Corporation. "They had plenty of customers."

Trickle down effect

The surcharge solution in one industry is posing a problem for other businesses. Roling said Conco is studying the impact of the surcharges it is paying out before deciding whether to pass on the cost to Conco customers.

"That is starting to affect the cost of manufactured product," Roling said. "We're just starting to determine what our additional fuel surcharge costs are, and then we'll make the decision of what we're going to do."

Other fleet businesses also are dealing with the increased fuel costs.

Randy Jensen, general manager of American Disposal Services of the Ozarks, said although operating expenses have increased $48,000 in recent months, customers have not been asked to pay surcharges.

The 100-truck trash hauler has 60,000 residential customers and 7,000 commercial and industrial customers in the Ozarks.

"We've had no surcharges," Jensen said. "We try to operate as efficiently as possible, so it impacts us as little as possible."

Why the high prices?

There are several reasons for rising fuel prices, according to O'Neal: the threat of war with Iraq, strikes in Venezuela, refinery fires and low oil reserves.

According to the EIA, there were 275 million barrels of U.S. crude oil in stock last week, which is below the 300 barrel average range. Consequently, prices are rising. Prices are about $36 per barrel, the highest since prices exceeded $40 per barrel during the Gulf War in 1991, according to the EIA.

As those prices rise, distributors must follow suit, said Tom Underwood of Underwood Oil Company in Rogersville. Underwood said distributors generally make 5 cents to 7 cents per gallon, but they also take losses some weeks. Underwood said there is no governing body to regulate retail pricing.

"We stay with the market," he said. "We're not going to be a nickel a gallon higher or lower. It's so competitive."

O'Neal said the crude oil prices aren't expected to flatten.

"Now we're close to $40 per barrel," O'Neal said. "Some people are saying $80 a barrel this year that's going to have a real bad impact on the economy. Trucking companies cannot bear that; they have to pass that on."