Saturday, March 15, 2003

Leap in diesel prices drives through economy

By Jeff McKinney
The Cincinnati Enquirer

[photo] Truck driver John Hughes turns off the pump Friday at Harris Motor Express on Crawford Street in Northside after putting 105 gallons of diesel fuel into his truck.
(Ernest Coleman photo)
| ZOOM |
Rick Harris, rubbing his brow in amazement while working dispatch at his small trucking operation in Northside, sums up this week's stratospheric diesel fuel prices: "Out of sight."

The cost for diesel fuel hit $1.83 a gallon in Cincinnati and $1.76 in Covington, according to Oil Price Information Service. Nationally, the average price was $1.79 this week.

Harris, operations manager at Harris Motor Express Inc., has seen his diesel fuel costs climb to $1.98 a gallon this week - up from $1.28 late last year.

Diesel costs have been pushed higher by the threat of war with Iraq and continued political instability in Venezuela, combined with a cold winter (since heating oil is made with the same feed stocks used for making diesel).

The surging diesel costs mean that American consumers likely will pay a little more for everything from appliances to pizza, as trucking companies pass the costs onto their customers.

Middletown's AK Steel, for example, last month imposed a fuel surcharge of 2 percent to 5 percent on its shipments. This week, both UPS and FedEx raised their surcharges on ground delivery.

But the rise in fuel costs is squeezing most directly small trucking firms like Harris Motor, causing their profits to fall and forcing them to change how they operate.

For instance, Harris says his firm pays $1,400 twice a month to fill a large tank on site to fuel its fleet of 30 trucks, compared with about $800 a month three months ago.

Harris this month began levying a 3 percent surcharge per load.

"They're really putting a squeeze on the little man," Harris says. "If this continues, it could force some of the smaller truckers out of business."

The soaring prices created a double whammy at Frank J. Catanzaro Sons and Daughters, a food distributor.

Not only have the higher diesel costs added about $1,000 a month since January to fuel its 35 delivery trucks, the business also is paying more for its wholesale shipments.

For instance, a case of tomatoes costs the company about $16 to $16.50, up from about $15 a case two months ago, said Jack Streicher, the company's logistics manager. The reason: Truckers are now charging a surcharge.

"It pushed up our costs, and accordingly, we've had to pass it along," Streicher said. He also said the firm is trying to offset the higher costs by operating more efficiently, making more deliveries than normally. For instance, drivers might now make 20 to 25 deliveries daily, up from 15 before.

He also said the company now pays about $1.80 to $1.85 a gallon for diesel fuel, up from $1.55 a gallon two months ago.

"I've been in this business for 24 years and this is about as high I've seen diesel fuel prices go," he said.

Of roughly 600,000 trucking companies that operate nationwide, more than 80 percent have six or fewer trucks, said Bob Costello, chief economist of the American Trucking Association (ATA), the Alexandria, Va.-based trade group.

Although he would not estimate how many trucking firms might collapse, Costello says that typically, for every 10-cent rise in fuel costs, about 1,000 trucking businesses shut down.

Moreover, he says thousands of trucking firms - basically mom-and-pop operations - with five trucks or fewer could be forced to close.

"The ones that will really get hit by this are those operators with one to two to three trucks," he says.

The reasons: Diesel fuel costs typically tend to be about 10 percent to 30 percent of a trucking company's annual operating expense, depending on the type and size of company. And unlike larger truck companies - such as Roadway and Holland - smaller trucking companies don't buy fuel in bulk.

That means they are not getting a discount as larger truckers do, Costello says. And even if they do, it's much smaller than their larger rivals'.

Fuel is the second-highest expense for a majority of trucking companies, behind labor. So far this year, trucking companies have paid more than $2.5 billion in extra fuel costs, compared with the same period a year ago, according to ATA.

For Dan Malone, shop foreman at Globe Transport in Cincinnati, a Pepsi-Cola distributor with 40 trucks, the increase has been tough.

But, like many other truckers, Malone will have to eat the higher expenses, cutting profit margins. If diesel prices remain at current rates or continue rising, Malone figures his firm will spend about $350,000 on fuel this year, up from $250,000 normally.

"The cost is astronomical," Malone, says. "It's the highest I've seen in my 30 years in the business."

The higher prices have forced Harris Motor Express to change its operation.

For example, Harris might have drivers who typically would only make two or three stops in Chicago now adding extra freight and making five or six stops. "Basically, you have one man doing the work of two guys," he says.

Harris, whose grandparents started the local and long-distance trucking firm in 1934, said he has not seen diesel prices this high since the early 1980s. His grandmother, Irma Harris, still owns and runs the business.

Harris is hoping that diesel fuel prices will eventually drop again, possibly in the next few months.

But until they do, it appears that his company and other trucking firms will have to make some adjustments.

"The more this cuts into operations, the more humps (doubling up on trips) we have to make," he says.


Treasury secretary visits town
Leap in diesel prices drives through economy
Inflation rises, confidence dips
Eight women of achievement chosen for YWCA award
Chiquita consults with SEC on bankruptcy write-downs
Delta offers staff 60 days off, no pay
If war ends quickly, oil price may drop, stabilize
Business digest
Tristate summary
What's the Buzz?

HIGGINS: Personal finance
Investor 101
Don't count on proposals for tax cut on dividends
The Schwabs talk money
Stock Market Game
Rate report