Truckers boost freight rates to offset rising fuel costs

By Jianfeng Pei -- Purchasing, 9/7/2000

Truck shippers face higher rates since carriers are increasing their freight rates and maintaining fuel surcharges to offset high labor and diesel prices.

Trucking companies traditionally adjust their rates every autumn, according to costs and market conditions. This year, with demand continuing to surge, most carriers are raising their general rates by as much as 6.5% to offset rising costs. It is a general trend for trucking companies to raise their rates this year. "Many carriers already increased their rates in August," says Bryan Millican, executive vice president of sales and marketing of Con-Way Transportation Services of Ann Arbor, Mich. "By the end of September, all carriers will follow this trend."

Con-Way increased less-than-truckload rates by 5.9% this month. "The major reason to raise our rates is the rising costs in labor," says Millican. "The labor shortage is the single biggest problem for the industry. It costs us much more to recruit, retain and train employees." Many trucking companies complain that it is difficult to hire and retain drivers as the country's unemployment rate remains at record low levels. According to the American Trucking Associations, the industry should be hiring 80,000 drivers each year, but it is only hiring 50,000 annually.

To help ease this problem, trucking companies are raising their wages for employees. "We increased wages by 4% in March," says Frank Conner, chief financial officer at American Freightways, Harrison, Ark. "Labor costs represent our biggest increase in operating costs." American Freightways raised its general freight rates by 5.5% this month. Meanwhile Roadway Express, based in Akron, Ohio, increased its rates by 5.6%

Tight capacity and high demand also are prompting trucking companies to raise their rates this year. "Our business is growing very fast and we are running close to maximum capacity," says a spokesman for Yellow Freight System, based in Overland Park, Kan. The company increased its general rates by 5.9% in August.

"The capacity tends to be tight for the trucking industry in the second half of the year as many shippers prepare for holiday seasons," says Mike Brown, spokesman for Consolidated Freightways, based in Menlo Park, Calif. The company implemented a general rate increase on August 1 averaging 5.85%.

As the economy keeps growing and demand remains strong, many trucking companies also are investing to expand capacity. "We increased our capacity by 22% this year and plan to continue the expansion," says Conner of American Freightways.

Atop that are fuel surcharges

As diesel prices have soared since the beginning of this year, carriers have imposed fuel surcharges to offset the rising costs. Fuel surcharges are adjusted each week, following the price of fuel on the Department of Energy's National Fuel Index. For example, the national average retail diesel fuel price was $1.41/gallon in mid-August. The average for all of 1999 was $1.12. The increase in diesel price has resulted in shippers paying pay fuel surcharges of about 3.5% for less-than-truckload and 5.5% for truckload shipments.

"The outlook for lower fuel prices is not promising," says Robert Costello, chief economist at the American Trucking Associations. It is impossible to rebuild needed inventory in a short period of time. With demand soaring for refined petroleum products, U.S. inventories of crude oil dropped in mid-August to the lowest level in more than two decades, according to the American Petroleum Institute.

In response, crude oil futures prices surged to their highest levels since the Persian Gulf War to more than $32/barrel, with traders blaming low U.S. inventories of crude and concerns that the world's largest producer, Saudi Arabia, has curbed production. "As the cold weather comes from October to next February, fuel prices are expected to go up a lot," says Costello.