In July 2008, when the price of diesel fuel zoomed to an all-time U.S. high of $4.85 per gallon, parts of the trucking industry screeched to a standstill, as the costs to deliver goods outstripped their ability to make a profit.
The industry got back in gear when the price of crude oil plummeted from its record high of about $145 a barrel to a little over $30 in the span of five months.
Now, prices are surging once again. As of Feb. 28, diesel averaged $3.72 per gallon across the U.S., up from $3.40 a month earlier and $2.86 at the same point in 2010.
With some fuel-industry analysts forecasting higher fuel prices in 2011 than in 2008, will drivers again pull out?
Most brokers and trucking industry leaders say no, although nobody denies it will be painful.
“Obviously the asset-based companies, through their fleet managers and drivers, are doing everything they can to optimize fuel consumption,” said Kerry Byrne, executive vice president of Cincinnati-based truck brokerage Total Quality Logistics.
“The reality is that nobody wins in the supply chain when fuel prices skyrocket. Even with dramatic productivity increases through the recent economic downturn, brokers and shippers will all be negatively impacted at some point through the cycle, resulting in higher prices to the end consumer.”
Get ready for higher surcharges, said Chuck Nelson, owner of New Braunfels, Texas-based Chuck’s Transport Inc.
“Ultimately, it’s going to the same for all parties involved — more money,” he said.
“We can’t absorb the cost because our margins are so thin already anyway. It’s the same thing for the produce wholesaler or retailer. So, how do you get that back? You and I pay it.”
Vicki Gable, business coordinator with Glendale, Ariz.-based Bigelow Truck Brokers Inc., agreed.
“Customers are going to have to pay more,” she said.
“The cost of transportation is skyrocketing because of that. Besides fuel, there’s maintenance on the trucks and customers want well maintained trucks. Unfortunately, with the costs climbing, they have to pay.”
Gable said a truck shortage is a possibility.
“A couple of years ago when this happened, companies just parked their rigs because it was not affordable to run them,” she said.
“A lot of them sold off quite a bit of their fleet, as well, just to keep them going. We noticed a lot of carriers in our listings have really shrunk their fleet sizes due to the economy, too. An awful lot of transportation companies closed their doors in the last three years and were purchased by other larger companies.”
How to avoid those scenarios is an unanswered question, Gable said.
“Just try to balance everything out,” she said.
“How can customers pay the prices that our carriers are requesting to run their trucks and their fleet? It’s kind of a fine line to be that middle person trying to balance everything out.”
Some drivers already have stopped operating, said Sid Hooper, agent in the McAllen, Texas, office of Goose Transport.
“A lot of truckers have parked their rigs because they can’t find enough business,” Hooper said.
“Right now, there’s just no pull.”
High unemployment and sagging economic numbers will add pressure to the trucking industry, said Joe Rajkovacz, regulatory affairs specialist with the Grain Valley, Mo.-based Owner-Operator Independent Drivers Association.
“Until that number (the national unemployment rate) starts changing, I have a tough time seeing how goods movement starts rebounding in a way that the supply and demand equation favors trucking,” he said.
“I certainly realize on the importation side, with containers, etc., that they’ve returned to their pre-2008 levels, but we still have a capacity issue in trucking, more trucks chasing a smaller amount of freight.”
Drivers who remain on the road will have to raise their rates, Rajkovacz added.
“I know they’re projecting fuel to continue to climb, at least through mid-summer, because of the unrest in Egypt. If that happens, they’ll have to seek cost recovery in the supply chain,” he said.
Significant surcharging already is in place, Rajkovacz said.
“I will say that the supply chain has been very adept during the economic downturn of squeezing concessions out of truckers on fuel surcharging,” he said.