Price of diesel drives truckers to conserve
The soaring price of diesel fuel has made for tough times in the trucking industry.
While the price of unleaded gas in Duluth has climbed 20 percent over the past year, the local cost of diesel has outpaced it, rising more than 60 percent during the same time -- from an average price of $2.89 per gallon last year to $4.68 today, according to AAA.
Tony Abrams, a Duluth Heights native who works for C2C Transportation Inc. of Goodyear, Ariz., drives a long-haul semi-trailer rig that carries 300 gallons of diesel. At current prices, it costs about $1,400 to fill his truck in Duluth.
To help control costs, Abrams' company has installed a speed governor on his truck, limiting his maximum speed to 70 mph.
"We're supposed to try not to go much over 60 mph, but it's tough because timelines can make you push it," Abrams said.
Ken Thompson, president of Jeff Foster Trucking Inc. of Superior, said his drivers have been instructed not to exceed any posted speed limits, and mileage has improved as a result.
"We've had some substantial gains, but we will continue to work with and coach our drivers," he said.
"We're a small company, and we certainly don't have the power to control fuel prices," Thompson said of his 185-truck operation. "We simply must do the best job we can to conserve and wisely manage our assets."
The American Trucking Associations supports a national 65 mph speed limit, aiming to conserve fuel.
On the down side, slower speeds can mean lower earnings for drivers who are paid by the mile or load.
As he pumped $462 of diesel into a logging truck at a BP station in West Duluth on Tuesday, Clifford Schmidt, 67, of Washburn shook his head and said: "There's no rhyme or reason to these prices."
Fuel costs have put the squeeze on trucking companies, particularly small operators, Schmidt said.
"The last two companies I worked for went under," he said. He currently drives for Bay City Trucking LLC, the operator of a six-vehicle fleet based in Ashland.
Mark Kivi, president and co-owner of Kivi Bros. Trucking and a third-generation trucker, said he has seen ups and downs in the business before, "But I've never been in a down cycle for this long."
December, January and February were some of the leanest for Kivi, though business has picked up lately. The Midway Township company operates a fleet of 24 flatbed trucks, specializing in the transport of construction equipment, materials and machinery.
"For a while, there seemed to be more trucks than freight. It was tough to get people to pay fuel surcharges at a time when other trucking companies were discounting their rates to stay busy," he said.
Kivi said his company and others were forced to operate at a loss for a while.
During the first quarter of 2008, 935 trucking companies, each with a fleet of at least five trucks, went out of business, according to the ATA. That's the worst fallout the industry has experienced since the third quarter of 2001, reports the Arlington,Va.-based trade group.
And it hasn't stopped. On May 21, Jevic Transportation Inc., a 1,000-truck company based in Delanco, N.J., filed for Chapter 11 bankruptcy, letting go of about 90 percent of the 1,500 people it employed.
"We could be seeing more activity because of the failure of some other companies," Thompson of Jeff Foster said. "There are fewer people competing for business." He said that the company's revenues have risen from last year's level, helping to compensate for shrinking profits.
Even before diesel prices spiked, the trucking industry operated with thin profit margins typically 2 percent to 3 percent, said Tiffany Wlazlowski, director of public affairs for the ATA.
Abrams contends that having a good mechanism for recovering rising fuel costs is an absolute necessity.
"If you don't have a good fuel surcharge, you're going down the tubes. It's as simple as that," he said.
Kivi said that labor used to be his biggest single expense, accounting for about 25 percent of his spending. That now takes a back seat to fuel, which consumes about 35 percent of his budget. He said the burden of rising diesel prices has made it difficult to compensate employees as well as he would like.
"We can't even really give our employees cost-of-living increases," he said.
Ultimately, everyone is likely to feel the effect of higher trucking costs.
Wlazlowski said that almost all the nation's consumer goods move by truck at some point in their journey to market.
"Higher trucking costs have the potential to increase the cost of most everything," she said.
Peter Passi covers business and development. He can be reached weekdays at (218) 279-5526 or by e-mail at email@example.com.