Truck Parts and Service | Heavy Duty Trucking, Aftermarket, Service Info
Issue link: https://read.dmtmag.com/i/85616
Inside the Numbers Could fuel prices wreck trucking's recovery? By Avery Vise avise@randallreilly.com putting more trucks into service, replac- ing aging trucks and buying new ones to expand operations. Virtually all economic indicators — even some in the troubled housing market — are pointing at least to recovery if not necessarily a rebound. Th at' T good news, of course, for the people who supply parts and service equipment. But not everything is rosy. Th e notion that we live in a global economy truly hits home when you consider the connection between international aff airs and the health of a domestic U.S. industry. Th e price of both diesel and gasoline have been rising since the start of the year, fueled by tensions with Iran over the status of its nuclear weapons program. Th at' s understandable since much of Iran's coast is on the Strait of Hormuz, which is a key shipping route for a huge chunk of Middle East oil. As of March 26, diesel prices have risen 35.6 cents, or about 9.5 percent, since the beginning of the year. Prices also have risen for nine straight weeks and for 11 of the last 12 weeks. Gasoline prices have soared 62.5 cents, or nearly 19 percent, since the begin- ning of the year, have risen for nine straight weeks and for 13 of the last 14 weeks. As fuel price surges go, this one is mild. Th e price hikes during the spring of 2008 or in the weeks immediately following hroughout most of the economy, truck fl eets are work- ing harder than they have in the past few years. Fleet owners are s Hurricane Katrina were far more dramatic. In fact, the current pace of diesel price increases isn't even as bad as last year when prices soared 60.1 cents, or 18 percent, in the midst of rebellion and protests in the Middle East and North Africa. Th e fact that the current surge isn't as bad as past ones is of little consolation to truck owners and motorists. In trucking, rising diesel prices obviously increase costs, and not all of those increases can be recap- tured through fuel surcharges. Even more detrimental to undercapi- talized fl eets is the cash drain that results from to the lag in the payment of fuel surcharges, which oſt en is 45 to 60 days or more. Fuel surcharge revenues actually coming in don't cover current fuel prices. Between the cash drain and pres- sure on rates, it would not be surprising to see at least a small spike in trucking failures even though the demand side of the business remains strong. Remember, carriers have to pay for fuel and driver pay almost immediately, but shippers don't pay carriers that quickly. When freight demand rises and costs surge, many carriers simply run out of cash. Diesel prices obviously have a direct impact on trucking, but gasoline prices have a signifi cant indirect impact. When gasoline prices rise, motorists have to spend more of their disposable income on gasoline, leaving less money to buy the things that trucks haul. Both diesel and gasoline are signifi cant factors in the industry's health. A more subtle eff ect of rising fuel prices is the pressure on freight rates. In the Randall-Reilly MarketPulse survey of for-hire trucking executives cover- ing February, one executive said that increased fuel costs "will further assault customers' budget allotment for trans- portation spend, which will then begin to attack core linehaul rates once again." Another said, "It really concerns me with fuel continuing to go up that it will be diffi cult to get the increases we need to off set our overhead. " "Turmoil around the world is causing a spike in fuel prices, which could result in consumers pulling back and a freight slowdown," said one truck- ing executive in the February Market- Pulse survey. In general, the trucking industry is rebounding, but you need to watch fuel prices. If they keep rising — and especially if those gains accelerate — you might fi nd that some of your customers aren't around anymore. Avery Vise is executive director, trucking research and analysis for Randall-Reilly Business Media and Information. 32 TRUCK PARTS & SERVICE | April 2012