Fuel Costs Posing Challenges for Small Trucking Operators

The rapid rise in diesel fuel prices this month is putting a strain on freight transportation companies and their customers, and small trucking operators are struggling to keep up with the rising costs.

Source: WSJ | Published on March 28, 2022

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Independent operators and smaller fleets are the most vulnerable to rising diesel prices because they have less negotiating power with shippers and have a more difficult time matching fuel surcharges to rising pump prices.

"It's been challenging," said Derek Crusenberry, director of business development at JSG Trucking Co. in Acampo, Calif., which has 20 trucks hauling lumber, steel, canned food, and other goods throughout Northern California. "We've had to find ourselves diving into our margins to support operations, to literally keep the wheels turning."

In freight rate negotiations, the shippers with whom JSG works have been slow to accept price increases that match those in diesel, forcing the company to postpone repairs and other expenses, he said.

The dramatic increases are outstripping their ability to pass on additional costs.

Diesel, the fuel used by truckers and a wide range of industrial operations, increased by more than $1.10 per gallon in the two weeks following Russia's invasion of Ukraine. The invasion has thrown global energy markets into disarray and caused the price of crude to skyrocket.

The average national price of $5.25 per gallon during the week of March 14 was the highest in U.S. Energy Information Administration records dating back to 1994, and the earlier-in-the-month increase of nearly 75 cents per gallon was the steepest one-week gain ever. Even a drop to $5.13 per gallon for the week of March 21, the national average price was up more than $1.50 since the beginning of the year.

Pump price increases are adding hundreds of dollars per week to the costs of operating each truck, and carriers are scrambling to keep up.

According to Truckstop.com, trucking companies use fuel surcharges to cover fluctuations in diesel prices, and those surcharges have risen on average to 43 cents per mile, up from 19 cents at the start of the year.

According to executives, fuel surcharges typically lag diesel prices by a week as they rise, but carriers can benefit as prices fall before the surcharge catches up.

A. Duie Pyle Inc., a less-than-truckload carrier based in West Chester, Pa., with 1,800 trucks serving the Northeast, said it topped off a 500,000-gallon storage tank, up from 70,000 gallons of diesel, just before Russia invaded Ukraine, a size advantage that has insulated the business from the steep, sudden price fluctuations.

However, the airline is now adjusting its fuel surcharge mechanism to account for diesel prices that are significantly higher than the scale that was established several years ago.

"Nobody imagined back then that we'd be paying more than $5 a gallon for diesel," said Peter Latta, chairman of A. Duie Pyle.

According to EIA data, the price of diesel in the mid-Atlantic region that includes the company's service area was $5.47 per gallon the week of March 14, up more than $2 from the previous year.

"The velocity of the increase has been really dramatic," Mr. Latta said, adding that customers "have been very understanding" so far.

Larger carriers typically have lines of credit and working capital to provide a financial cushion, so even if they are paid 30 or 45 days after hauling the loads, "whatever pain you incurred today is made good on within a couple of months," according to Avery Vise, a trucking analyst at FTR Transportation Intelligence.

"However, even if a smaller carrier receives surcharges, if that surcharge is not paid until a month or month-and-a-half later, they're going to have to float that difference in the interim," he said. "And that could be a problem."

Smaller operators are adjusting their operations to save fuel, such as limiting idling and reducing speed. Some are even turning down longer-haul loads in order to focus on shorter runs, according to industry executives.

Sadaya Morris, a truck owner in the Northeast who operates under the name Pink Transportation LLC, said her fuel costs increased from $250 to $400 the week after Russia invaded Ukraine. She has since shifted her business away from freight brokers—middlemen who, according to Ms. Morris, can be stingy when it comes to passing on fuel surcharges—and toward working more directly with customers.

Superior Modular Transport Inc., an 11-truck fleet based in Stockton, Calif., is spending about $10,000 more per week on fuel, according to President Daniel Titus, and the flatbed company's drivers are working 10 to 20 fewer hours per week as a result of the higher charges.

"Eventually, if this continues, we may have to park trucks," Mr. Titus said. There has been a "shock factor," he added, because Superior's customers have told the carrier that they are unable to pass on higher freight transport costs to their own customers quickly enough to keep up with rising prices.

California has the highest average diesel prices in the country. The price of gasoline in the state was nearly $2.24 higher than a year ago, at about $6.22 per gallon in the week ending March 21.

Michelle Kitchin works for Van Eerden Trucking Co., based in Byron Center, Michigan, and drives a refrigerated truck between California and Michigan. The cost of filling up for a two-week trip has risen by 25% this month to around $3,000, she claims. She has been driving slower to save fuel, but she must balance the need to save money with meeting delivery schedules—on top of legal restrictions on the number of hours she can drive.

"When making these decisions, you have to be practical," she said.