Trucking Industry Blog

Nine months ago, as fuel prices were nearing the $5.00/gal mark, the OOIDA (Owner-Operators Independent Drivers Association) approached congress and successfully initiated House Resolutions HR 5934 and HR 5977 and their counterpart Senate bill SB 2910 (the TRUCC Act) (Trust in Reliable Understanding of Consumer Costs Act). HR 5934 and 5977 were soon followed by HR 5997 (the Fairness in Trucking Transactions Act). These legislations, if successful, would be the first steps in destroying 28 years of de-regulation in the trucking industry in my opinion.

HR 5934 and HR 5977 would “require a motor carrier, broker, or freight forwarder that collects a fuel surcharge to disclose and pay the fuel surcharge to the person responsible for bearing the cost of the fuel, and for other purposes”, while HR 5997 would “require a motor carrier, broker, or freight forwarder that collects a fuel surcharge to pay an amount equal to the surcharge to the person that bears the cost of the fuel.”

What happened to the free market system some of us old dogs fought so hard for back in the ‘70s? Asking the government to step in and regulate the fuel surcharge rates is only the beginning in my opinion. What’s next, ask the government to decide what trucks are able to haul what freight?

The ports of Los Angeles and Long Beach initiated their trucking “Concession Plans” on Oct 1st of this year. These Concession Plans, although opposed by the ATA (American Trucking Association), and under investigation by the FMC (Federal Maritime Commission) for violation of the federal Shipping Act, require any truck that desires to enter either port to pay a $2500 non-refundable registration fee, and if accepted, all trucks with port access will be required to meet certain standards. These standards also include a minimum truck age and acceptable emissions levels (don’t miss understand me, I am all for acceptable emissions standards, but that is a topic for another day).

Don’t these initiatives smack of government stepping back into the trucking regulation business?

What could re-regulation mean to me as a trucking company or as a truck owner? It could mean the re-establishment of the ICC (Interstate Commerce Commission) to regulate published tariffs. In other words, for me to haul any ‘regulated’ freight, I would have to publish a rate tariff that the whole world has access to. It doesn’t matter what that rate is, it’s published. Now my competition knows exactly what his rates need to be to undercut my rates with any or all of my customers. Since the cost of submitting a tariff amendment is so cost prohibitive, I can do nothing but hope, that in the eyes of my customers, my service is worth the rates I am charging. (By the way, if I don’t have a tariff published for/with a given customer, I can’t haul it.)

Many O/O’s out there are concerned that the ‘big guys’ are undercutting their current fuel surcharge and accessorial pricing in order to push the O/O out of business. Re-regulation means that the government can determine what fuel surcharge I can charge. And that price of fuel surcharge (and any other accessorial charge for which the government has taken ‘ownership’) will be calculated from a the national average or a regional average, but never close enough to the price I need to survive and compete with the ‘big guys’.

In my opinion, trucking and transportation are, and should be, part of free enterprise and a free market. We worked hard to get it there, and we should do all we can to keep it there. The big guys need the little guys, they need them to help cover their freight so they can stay in business. Capitalism works best when the rules of supply and demand are left to fight their own battles.

For those who say we need the government to help us make ends meet, I leave you with the words of TIA President and CEO, Robert Voltmann:

“In the free market, companies are free to accept or reject jobs. Carriers should just say no to cheap freight.” (The full story is here.)

As a final note, all of the HRs and SB 2910 are still in committee, and hopefully will die there. But if the price of fuel starts to rise again, federal re-regulation of the trucking industry could be entertained once again.

Dale Clark
TruckMaster Solution Provider

National average fuel prices hit a new 52 week low yesterday at $2.81 per gallon, drastically down from an all time high of over $4.76 per gallon just 4 months ago (source: U.S Government Energy Information Administration - the TruckMaster Fuel Finder is showing a $2.71 average this afternoon).

How long will this downward spiral continue? Not much longer, in my humble opinion.

We all heard the excuses for the skyrocketing oil prices literally weeks ago:

• Speculation on oil futures
• Emerging economies in China and India driving up demand
• Political tensions in the Middle East
• Drop in the value of the US dollar
• Shortage of refining capability
• Natural disasters in oil producing regions
• Certain dictators in South America

Out of all of these inflating factors, really only the speculators have changed drastically. This is probably one of the only good side effects of a tanking stock market, oil prices have been hit as hard or harder than just about every other traded commodity. Sure, political tensions have been moved off the front page due to a presidential election and sour economy, but the same problems still exist, and will surely be elevated in the minds of the public once again shortly.

If we allow for some unknown or unexpected crisis to rear its ugly head, it could surely lead to just as severe or possibly more severe upward trend in prices, and $4.70 per gallon prices will be the norm again.

Keep in mind that since a new high price has been established for a barrel of oil, speculators are naturally going to assume that if it has hit that high before, it can hit that high again. They will be more apt to jump into the market and stay in the market until just short of that high.

Are there steps that a trucking operation can do to be prepared for an eventual spike in fuel prices? Sure, please allow me to share a few suggestions.

Implement Fuel Surcharges

I'm going to assume you have already done this, or you wouldn't still be in the trucking business, but just in case..

Starting with the customer you haul the most volume for and working down the list to the lowest, negotiate fuel surcharges. Most larger companies that ship product expect to pay a fuel surcharge and have an existing policy in place. Most base the percentage off of a national fuel price index (such as the DOE, or OPIS), some will modify this percentage based on the lane or region, still others have complex algorithms to determine the percentage.

Since most of these surcharges will be based on some sort of weekly, biweekly, or monthly index, a drastic jump in fuel prices will come out of your pocket until the index is adjusted to what you are paying at the pump.

Keep in mind as you are negotiating fuel surcharges, that a fuel surcharge is not an opportunity to make profit, it is an opportunity to protect the profit you have already established in your carriage rates.

Now is a good time to get these agreements in place, as not every other carrier in the world is trying to get them at the same time.

Research Fuel Optimization Software

I'm not going to go as far as to say that now is a good time to be investing in fuel optimization software, but check out the market and be aware of the solutions that are out there. There are several companies that provide services that allow you to send them the locations and destinations of your trucks, and in return provide you with the best places to fuel and recommended quantities at those locations. Some of these services claim they can save you up to .08 per gallon over time.

Check them out, determine which of these services (if any) most fit your budget and circumstances so that when and if there is a need, you are ready to sign up.

TruckMaster provides a free online service, the TruckMaster Fuel Finder, that lets you find the cheapest diesel fuel at truck stops all across the US. In many cases this may be all you need, and doesn't cut into your fuel savings.

Implement Software To Track Fuel Surcharges

If you do not already have it, find trucking software to help you manage your fuel surcharges. I've posted an article on selecting trucking software to manage fuel surcharges on our trucking software blog, so will not cover this topic in detail in this post. Suffice it to say that you should be able to ensure easy maintenance of the different fuel surcharges you have in place with your customers, as well as insurance that you accurately billing your fuel surcharges, and more importantly, not missing them altogether.

Start a Fuel Reserve Account

You are saving an average of $1.95 per gallon of diesel fuel over what you were paying for the same gallon 4 months ago. If diesel fuel prices stayed the same as what they are today, putting 10% of this savings away in a hole in your back yard would give you $3167 after a year's time, assuming one truck at 100k miles and 6 mpg. Taking it out of the hole and putting it in an interest bearing (safe) bank account will give you a little bit more.

Force yourself to only use the funds in this reserve account for the eventual increase in diesel fuel prices, and you have allowed yourself a buffer for the lag that you will see between price increases at the pump and fuel surcharge indexes being adjusted.

I hope that I am wrong, and diesel fuel prices will stay where they are or lower, but just in case I am right, it may be a good idea to consider some of these suggestions.

I welcome your feedback on my thoughts. If you have other suggestions that I haven't listed, please share!

I hope you find my post accurate and relevant.

Greg Dodson
President
TruckMaster Logistics Systems, Inc.
TruckMaster Your Trucking Company™

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Founder - TruckMaster Logistics Systems, Inc.