All across the country, small companies that provide transportation services are being walloped by higher fuel costs.
Just as consumers feel the pinch at the pump with prices that have doubled in several years, so are small trucking firms that provide consumer services.
Colder climates like New England, in particular, gas, diesel and heating oil prices continue to hammer the small delivery vehicle industry.
Towing Industry Getting the Boot
Take for instance, the Massachusetts towing companies, just one of the industries suffering through this latest energy crisis. However, unlike non-regulated transportation companies, the Commonwealth of Massachusetts regulates this industry and what they can charge for their services. While fuel prices have doubled, the Commonwealth has maintained rates that were implemented and developed when fuel was only $1.77 a gallon.
In May 2006, the Statewide Towing Association of Massachusetts filed a fuel surcharge petition with the Commonwealth’s Department of Public Utilities (DPU). As of this writing, January 2008, the DPU has not made a ruling.
“The effect of this has been devastating to our industry. The towing industry in Massachusetts is comprised mostly of very small ’Mom and Pop’ operators,” said William Johnson, president of the Statewide Towing Association, an organization representing many of the state’s towers in Massachusetts.
“These operators have been handcuffed by the inaction of the DPU. While operating costs have skyrocketed with the higher fuel costs, state regulators have been unable to develop a fair system for developing a fuel surcharge. Without approval by state regulators, the towing industry is unable to adjust to compensate for the higher fuel prices.”
Most towing companies in this state are small, family-owned businesses who are clearly struggling in this economy. The same is true in all six New England states. In addition to increased costs associated with healthcare and insurance, the doubling of fuel prices is making basic operations nearly impossible for many tow truck operators.
“Without relief from the DPU in allowing us to add a fuel surcharge, we could see a lot of tow operators hang it up — impacting service to consumers at all levels,” said Johnson of the non-consensual towing industry in particular.
“The Commonwealth has been very slow to approve the new surcharge. It seems like the governor’s office is more concerned about [establishing] casino gambling than (this) issue,” added Johnson, a reference to Mass. Gov. Deval L. Patrick’s plan to build three statewide casinos to bolster the state budget and initiate some form of property tax relief, his salient campaign promise in the election of 2006.
“The impact of higher fuel costs and the DPU’s inability to make a ruling in over a year and a half is placing a crushing blow on our industry. When most tow vehicles are only operating on a fuel economy average of 6 mpg, I think most reasonable individuals would realize that there are no profits unless we can add a temporary fuel surcharge,” added Johnson. “Instead, it’s the Commonwealth of Massachusetts with a broken system that is the Grinch denying us of our livelihood.”
From $25 to $100 Per Barrel
Johnson added that the Legislature fixed surcharges at a rate of $1.77 per gallon more than two years ago, something completely out of line with today’s fuel prices. As of Dec. 19, Johnson added, the DPU informed the Statewide Towing Association of Massachusetts that no fuel surcharge will be developed in 2007. It offered no definitive guidance for a future resolution.
According to WikiPedia.com, the price of standard crude oil on NYMEX was under $25/barrel in September 2003. By Aug. 11, 2005, it had risen to more than $60/barrel. Through most of 2006, the price showed a bumpy plateau, with a summer peak, falling for the early part of 2007 to between $50 and $60/barrel, before rising again.
By October 2007, prices had reached $92/barrel and reached $99.29/barrel for December futures in New York on Nov. 21, 2007. On Jan. 2, 2008, oil prices had an all-time peak at $100 per barrel.
According to Anne Lynch of the Massachusetts Motor Transportation Association (MMTA), 93.17 percent of all goods delivered are moved by truck in the Commonwealth.
“That makes transportation the single most important element of commerce in our state. If you cannot move it, you cannot sell it,” said Lynch in a message on the MMTA Web site. “Without trucking, everyone would be homeless, hungry and naked; think about the truth in that statement.”
Testimony Before U.S. Senate
In early 2007, Timothy P. Lynch, senior vice president of the American Trucking Associations in Washington, D.C., addressed the U.S. Senate Committee on Small Business and Entrepreneurship — headed by Chairman and U.S. Senator John Kerry and Ranking Senate Member Olympia Snowe — with a report titled, “The Impact of Rising Gas Prices on America’s Small Businesses.”
Lynch’s American Trucking Associations is the largest national trade association for the trucking industry, representing more than 37,000 members, covering every type of motor carrier in the United States.
Lynch told the senators that, in 2005, trucks transported nearly 11 billion tons of freight domestically, representing 69 percent of all freight transportation tonnage. The trucking industry, he said, accounts for 84 percent of all freight revenues and exclusively serves the freight needs of more than 80 percent of all communities in the United States.
“While the industry is very large, it includes hundreds of thousands of small businesses. As of November 2006, there were over 700,000 interstate motor carriers in the United States classified as small businesses — 97 percent operating 20 or fewer trucks,” Lynch said in his 2007 report. “For most motor carriers, fuel is the second-largest operating expense after labor. Small carriers are particularly vulnerable to large and swift increases in fuel prices. Typically, the smaller the carrier, the larger percentage fuel represents of total operating expenses.”
Lynch noted that, over the past four years the price of diesel fuel has steadily increased. According to the Energy Information Administration (EIA), the national average price of diesel rose from $1.81 per gallon in 2004 to $2.41 in 2005 and then rose again to $2.71 in 2006. EIA analysts now estimate that diesel will average $2.75 per gallon in 2007 and $2.76 per gallon in 2008.
This year, in order to haul the nation’s freight, the industry will consume 51 billion gal. of fuel, including more than 38 billion gal. of diesel fuel at a record cost of $106 billion — $3 billion more than in 2006 and more than double the industry’s fuel bill in 2003.
“The sharp increase in the cost of diesel fuel is a hardship for small trucking companies but the full impact must be viewed in the context of what is occurring with fuel economy and environmental controls,” added Lynch. “This challenge is fully captured in the comments of the president of Pottle Transportation of Bangor, Maine. Barry Pottle who said, ’25 years ago, my trucks were a little over 4 miles to the gallon. In the mid-90s, my trucks were getting close to 7 miles to the gallon. With the new engines and new requirements for the use of ultra low-sulfur diesel, my trucks are now getting about 5 miles per gallon.’
In order for one of Pottle’s trucks to travel 125,000 miles annually — somewhat typical for his type of operation — he would consume fuel at the following rates:
4 mpg — 31,250 gal.
5 mpg — 25,000 gal.
7 mpg — 17,857 gal.
Applying today’s rate of $2.79 per gallon cost for diesel, Pottle’s costs per truck are as follows:
4 mpg — $87,188
5 mpg — $69,750
7 mpg — $49,821
“The approximately $20,000 differential between a 5 and 7 mpg fuel efficiency rate multiplied by the number of trucks operated by a small business can make the difference between business success and business failure,” said Lynch. CEG