News
Sink or swim
Small-business truckers struggle with high fuel costs

By Terry Scruton
senior writer

Do a Google search on fuel costs, and you’ll come up with dozens of news stories about how consumers are feeling the pinch.

For independent truck drivers, however, that pinch has exploded into a full-blown death grip. It’s a feeling that Stan Cardy knows all too well.

Cardy parked his truck a year ago and has been driving for a company ever since. 

It wasn’t a decision he wanted to make, but Cardy said he just couldn’t afford to keep his truck running. He said it got to the point where even his Comdata discount fuel card wasn’t doing him any good.

“The price didn’t go down anymore,” he said. “The price of regular went to diesel (levels) and diesel went to regular, and it’s been going up ever since.”

Cardy is not alone in his frustration. Go into any truck stop in the country, start talking about diesel prices, and odds are you’ll get an earful.

“There’s a lot of aggravation out there,” said OOIDA member John Corbett. “Guys are upset that fuel is so high. They don’t feel like it’s justified.”

Rate race
Corbett, who hails from Stow, OH, said things haven’t been too bad for him personally, but he knows a lot of truckers out there who are getting nervous. And when those drivers get nervous, they have a tendency to go for cheap freight.

“I know guys that don’t run for anything,” Corbett said. “They run at a loss or break even. They’re running under their operating costs just to break even. When these guys get nervous like that, the rates start dropping.”

Another OOIDA member, Jeff Ashby of Wauseon, OH, isn’t taking cheap freight, but he knows that nervous feeling better than he’d like to. Ashby, who hauls airport cargo coast-to-coast with his wife, Diane, said his feelings have risen beyond the level of mere concern.

“In 2000, when we first went into business, I was concerned,” he said. “Now I’m worried. None of us are making any money. We’re living on a little bit of fuel surcharges and the grace of God, to be honest with you.”

Ashby said those drivers who are getting nervous and taking cheap freight are making things even more difficult for the rest.

“I want to be able to fulfill my obligations, but if I push the envelope too far … ” he said, trailing off. “There’s always going to be somebody that’s going to pull it cheaper. Nobody is willing to accept the inflation of fuel.”

Low rates have been a problem for truckers for years, and skyrocketing fuel costs haven’t helped. Consider this: In 1995, diesel averaged about $1.10 per gallon, while truckers got anywhere between 85 cents and $1.50 per mile. 

Today, diesel is hovering between $2.20 and $2.30 per gallon – and sometimes even higher – while rates haven’t changed all that much. The typical rate for an owner-operator these days is somewhere between $1.50 and $2 per mile. 

Do the math. The price of diesel has more than doubled in 10 years, while freight rates have only increased about 30 percent to 40 percent – in some cases not even that.

“I know old-timers that are making the same amount of money as they were 20 years ago,” said Corbett.

A taxing situation 
One of the things that frustrates drivers like Ashby so much is the fluctuation of prices from state to state. One of the reasons, of course, is fuel taxes, which are different in each state. But Ashby said he doesn’t buy that explanation.

“How can a state like Wyoming have a tax of 14 cents and have fuel that’s $2.26 per gallon,” he said. “Then you go into Gary, IN, where the fuel tax is 2 cents higher, and the price is 20 cents cheaper.”

According to the American Petroleum Institute, there are several reasons for this. In addition to state fuel taxes, there are also county and city taxes that apply. 

For example, Nevada has a 27-cent-per-gallon fuel tax on diesel. Pennsylvania, meanwhile, has a 35.1-cent-per-gallon fuel tax on diesel. So why then, on May 2, was diesel priced at $2.51 per gallon in Nevada, while it was only $2.34 in Pennsylvania?

The answer to that is a complicated one. But what it basically comes down to is that Nevada has a slew of county, state and environmental taxes on diesel that Pennsylvania does not have. Nevada has up to a 10-cent-per-gallon county tax, a 3¼4-cent-per-gallon cleanup fee, and about a 1¼20 of a cent-per-gallon inspection fee. Pennsylvania has none of those.

Michael Belzer, a research scientist and professor at the University of Michigan, said there are plenty of other factors that go into the cost of a gallon of diesel fuel. 

Crude oil – from which diesel is made – is in tremendous demand throughout the world. Belzer said the problem is that little, if any, new crude oil is being found. Most crude oil on the market today comes from existing fields.

“They are actually not making any new crude oil anymore,” Belzer said. “You have a fixed amount of land, and you can only chop it up so many ways. With the exception of a new reserve set here and there, essentially what it amounts to is there’s no more fuel being made.”

On top of that, energy consumption in places like China and India is exploding, which is further driving demand.

“Once we come to China, all bets are off,” Belzer said. “China is soaking up the resources of the world, and they have never done that before because they have never been economically in a position to do so.”

Another factor is refining capacity. The United States has not built a new oil refinery since the 1970s, and many have been shut down since then, leaving the remaining refineries at maxed-out production levels. 

None of this, however, makes truckers on the road feel any better.

“What’s really scary about the whole thing is the more you try to find out what’s going on, the more you find you have no control over the thing and you’re just along for the ride,” Ashby said.

Surcharging ahead
One thing that could help drivers is a mandatory fuel surcharge. Belzer said a fuel surcharge could provide some short-term relief to some basic problems in the industry.

“It does appear that over the long term, the market will adjust,” he said. “But over the short term, it will not. So an owner-operator who is giving away his labor already can’t give away the cost of fuel, too. So we have a pretty fundamental problem here.”

Corbett said a mandatory surcharge could give drivers the leverage they need to keep their trucks running at a fair rate.

“It (could give) us the flexibility to make the difference up on the fuel end of it,” he said. “They wouldn’t really have to change the rates any. We could still basically get the same price, and if we know we’re going to get a surcharge because the fuel’s so high, that will help compensate.”

Cardy said a surcharge could help him get back behind the wheel of his own truck, but it depends on how it is handled. 

“I think it ought to be based more on the price of oil,” he said. “If the oil keeps going up, the surcharge should too.”

Cutting back
While drivers are waiting for a mandatory fuel surcharge to be approved by Congress, there are some things they can do to cut corners and save costs on the road.

Corbett said one of the biggest things drivers can do is to simply take good care of their trucks.

“Keeping your equipment up is probably the biggest thing,” he said. “That will keep your maintenance and cost of operations down. There’s a lot of owner-operators out there that run until they have to fix something. Then they break down, and they only fix what they need to get them down the road.”

Corbett said a lot of truckers out there run cheap and don’t keep up on the maintenance of their trucks, and that’s something that hurts everybody.

“These are the guys that are usually running as cheap as they can, trying to run as much as they can and hoping to make money on the quantity instead of the quality,” he said. “That’s more of the local stuff, but that hurts everybody because they are running so cheap.”

Saying no to cheap freight is another step drivers can take to get rates back up. Corbett said he is also cutting back on items that are more luxuries than necessities for his truck and prioritizing what the truck actually needs.

Some of these changes might be difficult for some drivers to make, Corbett said, because they have done things one way for such a long time. But these are changes that need to be made.

“That’s what’s plaguing the trucking industry,” he said. “There have been guys out there running quite a few years, and this is all they know, and this is all they’ve done. It may have worked that way 30 years ago, but it’s not going to work that way now.”

terry_scruton@landlinemag.com

 

So you think you’re being gouged?

Often, the sight of high prices at the pump leads many to think that oil companies are unlawfully gouging them. That’s easy to say but difficult to prove.

“Price gouging is a vague term,” said John Cogan, an energy information specialist at the Energy Information Administration. “Most people look at it as unfair pricing, but it’s not defined legally anywhere that I know of, so it’s a very subjective thing.”

High prices are not illegal, but Cogan says collusion and anti-competitive pricing are unlawful, although very difficult to prove.

If drivers think they are being gouged, here are some places to turn:

  • The Federal Trade Commission, which works with consumers to prevent fraudulent, deceptive and unfair business practices. To file a complaint, visit its Web site at ftc.gov or call 1-877-FTC-HELP (1-877-382-4357).
  • The U.S. Department of Energy, which has a price watch Web site set up at gaswatch.energy.gov.

Reports of excessive pricing can also be mailed to:

Gas Price Watch Project 
U.S. Department of Energy
Box 2800 
1000 Independence Ave. SW 
Washington, DC 20585