As fuel prices continue to climb across the U.S., trucking and delivery companies here are shifting the load of additional expense onto their customers through fuel surcharges to help offset their costs.
The rising fuel prices are pinching trucking companies budgets, and pressuring smaller shippers and trucking companies that might want to pass on extra costs to customers but dont think they can, transportation-industry executives here say.
Though trucking companies have instituted fuel surcharges in the past when fuel prices have risen dramatically, surcharges are higher this time, says Michele Maher, owner and CEO of Freight Management Resources, a Spokane freight-consulting concern. Maher also sits on the Washington state Transportation Commission.
Most regional, less-than-full truckload (LTL) carriers currently are adding a 10.5 percent fuel surcharge onto their base rates for hauling, while long-haul carriers are levying a 7.9 percent to 12 percent surcharge, depending on where their trucks fill their fuel tanks, Maher says. Last year, trucking companies set surcharges at about 3 percent to 5 percent of net invoices, she says.
As she arranges shipments for her clients, Maher is factoring a 15 percent fuel surcharge into bids for LTL-freight jobs that are 60 days out to make sure her clients dont end up paying even higher surcharges when their deliveries are made. Though fuel prices change weekly and vary throughout the U.S., they dont appear to be dropping, she says.
I dont have a crystal ball, but I think fuel surcharges are going to continue to go up for quite some time, she says. This is allowing carriers to charge a fluctuating rate for a cost they cant control.
Railroads also have added fuel surcharges, currently of about 7.9 percent to 9 percent on average, depending on where trains are traveling, she says.
A number of her clients who operate with thin profit margins often pass on higher shipping costs to consumers because they cant absorb the additional freight costs, Maher says. Some smaller companies, however, dont always consider that a wise option, she says.
If you own a private hardware store and youre competing against Home Depot, you might want to pass on those costs, but dont feel like you can and stay in business, she says.
Doug Ross, president of Spokane-based Spokane Transfer & Storage Co., says fuel surcharges that the company instituted a year ago recovered about 75 percent of its fuel-cost increases in 2003, but might recover 85 percent to 90 percent of fuel costs this year.
Spokane Transfer, which calculates its fuel surcharge according to the national average cost of fuel per week, currently levies an 11.5 percent fuel surcharge, Ross says. That percentage has jumped significantly since last year, when its fuel surcharge dipped as low as 3 percent.
Weve had to institute a fuel surcharge a few times in the past, but never this long and never this high, he says.
Recently, Spokane Transfer paid $212 at a gas station here to fill up one of its 33 vehicles, most of which hold up to 100 gallons of diesel fuel, Ross says. The company paid $440,000 for fuel in 2002 and $500,000 last year, and likely will spend much more than that this year if fuel prices continue to rise, he says.
The increasing expenses are squeezing mid-size and smaller truckers budgets, Ross says.
Were aware of a few smaller companies that just went ahead and discontinued their business because it didnt make economical sense, he says.
Though Spokane Transfer has recovered a good portion of its added fuel costs through surcharges, other smaller truckers, including independents, havent been able to pass on those costs to customers because of competitors lower rates, Ross says. Also, fuel prices especially burden independent truckers who are paid per mile rather than an hourly wage by an employer that shoulders the extra costs, he says.
Fuel costs probably wont pressure Spokane Transfer this year to the same extent as they will larger companies that have more vehicles and travel more miles, he says. Spokane Transfer hauls partial and full truckloads within a 125-mile radius of Spokane.
Don Piontek, fuel and license manager for System-TWT Transportation here, which hauls throughout most of the U.S. and Canada, and also in Mexico, says the drivers of the companys 800 tractors get hit with higher fuel prices in the West Coast and Rocky Mountain-regions than in other areas of the country.
Last month, System-TWT paid an average price for diesel fuel of $2.09 a gallon in Spokane, compared with an average price of $1.32 a gallon in May 2003, he says.
As of last week, the average price of diesel fuel nationally was $1.76 a gallon, and the average price in California was $2.27 a gallon, Piontek says. A year ago, the national average price of diesel fuel was $1.43 a gallon, and the average in California was $1.53 a gallon, he says.
System-TWT now spends about 40 cents a mile for diesel fuel, compared with 28 cents a mile a few years ago, Piontek says. Fuel costs, which make up about 35 percent of the companys operating expenses, account for nearly as much as labor costs, the companys largest expense, and are narrowing that gap.
System-TWT and a number of other trucking companies have tacked on fuel surcharges to customers bills since the mid-1980s, Piontek says. The companys refrigeration vans currently have a 13 percent fuel surcharge, and the surcharge amount for other vehicles varies, he says.
Adding the surcharges hasnt curbed freight volume or demand for services, Piontek says. Customers typically havent protested the increases, perhaps because they know fuel costs are soaring and because they also have passed along the extra expense, he says.
Bigger shippers probably know that if they have a product to move, they have to pay for it and figure out how to add it onto retail prices at their stores, he says. Ultimately, the consumer is the person that pays the bill.
Shippers pass on those costs to customers because they, like trucking companies, dont have large enough profit margins to absorb the expenses, Piontek asserts. System-TWT and the average truckload carrier operate within a 2 percent to 3 percent profit margin, he says.
Jim Thurber, president of City Parcel Delivery Inc. here, which delivers mostly small parcels, says increasing fuel prices havent hurt that companys bottom line significantly, mainly because its fuel surcharge has offset those costs.
City Parcel added a 5 percent fuel surcharge to customers bills in April and likely will add roughly a 6 percent surcharge to invoices billed last month, Thurber says. The surcharges have helped the company recover much of the money it spent on fuel, which now accounts for about 10 percent of operating costs compared with 5 percent in January and 4 percent a year ago.
Thurber thinks customers are becoming more understanding about fuel surcharges and says that more people are calling City Parcel for delivery rates.
The public is getting more aware of it, he says. Theyre having to deal with it as much as we are, just getting back and forth to work.
Jackie Zimmerman, secretary-treasurer at Spokane-based Zillah Hauling Service, says that although most of the companys customers have accepted its 11 percent fuel surcharge, a few have refused to pay it.
Zillah, which started adding the surcharge in late February, has stopped hauling for customers who wont pay the additional fee, Zimmerman says.
My best advice to any trucker is if you cant get (the surcharge), dont haul it, she says.
Fuel costs accounted for 19 percent of Zillahs operating expenses last year, and that amount likely will increase at least slightly this year, Zimmerman says. Zillah, which primarily hauls building materials throughout Washington, Oregon, Idaho, and British Columbia on its 12 vehicles, owns a bulk fuel storage tank that helps it reduce its fuel costs.
Other small companies here that dont own that type of tank and dont receive the fuel-price reductions some larger companies can obtain might be at a disadvantage, Zimmerman says. All trucking businesses, however, are feeling the pinch because they all buy fuel, she says.
Maher says shes encouraging her clients to consider shipping freight on full-truckload haulers or via truck trailers carried on railroad cars to save money on freight costs. Shipping 30,000 pounds of freight on a full-truckload rig will cost about the same price as shipping 6,000 pounds on an LTL carriers rig.
Some clients might not be able to afford the extra freight volume or have storage for it, but if they can, they might manage their expenses better, Maher says.
Ross says Spokane Transfer has tried to save money this year by buying five vehicles that get 25 percent better mileage than some of the vehicles Spokane Transfer operated two years ago.
Piontek says System-TWT has advised its truckers to reduce the time in which they allow their trucks to idle and has installed fuel optimizers in its trucks to achieve fuel-cost savings. The computerized optimizers link a truck to a company satellite-based navigation system, which searches for gas stations with the cheapest fuel along each truckers route. The system tells drivers where they should stop to fuel up and how much fuel they should buy at a particular stop, he says.
The optimizers help save money on fuel costs because they calculate fuel-price reductions available to large-volume vehicles at each gas station, which drivers cant do simply by looking at the posted prices on a stations marquee, Piontek says. For System-TWT, any method of cutting costs makes a difference, he says.
Saving 2 or 3 cents a gallon is a huge amount for a trucking company, he says.
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